I just bought a condo from trustee sale. not sure if it’s still occupied. I know I should wait for the deed to record it before taking action. What is a good way to approach it if I don’t know if it is vacant? Does the bank or trustee notify the previous owner that the house has been sold? Thank you very much, Mabel
You can immediately take action. You will want to knock on the door and do the occupancy check. If the property is occupied you will want to find out if it is a renter or an owner. See if you can negotiate their departure (you may have to offer cash for keys) or determine if you need to start the eviction process. In terms of the transfer of title and the recording of the Trustees Deed Sean O’Toole the Founder of ForeclosureRadar wrote in another forum post “It’s better if you can record within 15 calendar days of sale in CA, as Civil Code 2924 provides that the sale shall be perfected as of 8am the day the sale was held - rather than the date the trustees deed was recorded”
Let me add that some feel waiting until the deed is recorded is better. The primary reason for this is that if an owner occupant gets all up in arms they may be able to convince the lender to rescind the sale and never send you a deed. My personal approach has been to try to assess whether or not the property is occupied immediately (peak in windows, ask neighbors, etc), from there if I bought a really good deal and the property is occupied I’ll wait for the deed. If I bought a marginal deal I’ll contact the owner immediately as I’d rather know early if I’m facing a battle with an owner and then help them try to get the sale rescinded rather than be stuck in a fight as the new owner. If its vacant I call the locksmith and have it rekeyed immediately. Hope that helps.
Thanks to Michelle and Sean for your help. I am wondering now what are the recourse the homeowner has to get the bank to rescind the sale. and if he can do it now can’t he do it even after I record the ded?
If this property is rented out, do I have to honor the rental agreement or can I ask the renter to move?
Hi Mabel-thanks so much for your nice message. In California you do need to honor the lease if they have one or give the tenant 90 days notice to move. This is why most investors and banks try to negotiate a cash for keys deal. You can read more about this in Sean’s blog http://www.foreclosuretruth.com/blog/sean/auction-investors-reo-brokers-and-renters-take-note-significant-change-eviction-notice-req/
Their only real recourse is a law suit. Generally though they’d be limited to damages against the lender as you should be deemed a bona-fide purchaser for value. As such the sins of the lender, even if proven, should not impact you. If for some reason they did, then I would think you’d have a good case against the lender for damages. I wouldn’t lose a lot of sleep over it, but I would do my best to negotiate cash-4-keys and make sure the folks move on rather than fight.
Is it 90 days OR honor their lease or is it 90 days eviction notice and honor their lease. Also, what if the lease is 3 years, is their a maximum lease to be honored?
Scott, The Protecting tenants at Foreclosure Act of 2009 provides: SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY. (a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to-- (1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and (2) the rights of any bona fide tenant, as of the date of such notice of foreclosure-- (A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or (B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1) 702(a)(1) provides that the buyer at foreclosure takes the property subject to the 90 day notice requirement to a bona fide tenant AND subject to any bona fide lease. 702(a)(2)(A) requires that a boa fide lease be honored and there is no mention of a maximum lease term. If you are presented with this situation, look closely at the relationship of the tenant to the defaulting owner and the lease terms with the tenant to confirm that bona fide standard has been met. Here, a 3 year residential lease is unusual and worth a closer look.
I believe the The Protecting tenants at Foreclosure Act of 2009 specifies that a lease of up to 1-year will be honored.
tom, from the foreclosure act, is it your understanding that if the lease was signed AFTER the foreclosure had begun on the previous owner, then it is wiped out at foreclosure? thx
The act only gives the tenant the right to occupy the property to the end of the term of the lease - and then only in certain circumstances. It says nothing about honoring any other terms of the lease, though it is implied that the owner can stay at the current rent. See: http://www.foreclosuretruth.com/blog/sean/auction-investors-reo-brokers-and-renters-take-note-significant-change-eviction-notice-req/
The lease needs to have been in effect, i.e. ratified and commenced, prior to the change of ownership brought about by the trustee sale or foreclosure auction. The actual sale, whether voluntary or involuntary (auction), is the point of change of ownership. A foreclosed owner is still the owner of the property until that trustee sale takes place, even though “the foreclosure process,” which takes several months, had already commenced.
The lease is to be honored in regards to all of its terms, to include possession, and rents paid (now to the new owner). When you say the act “only gives the tenant the right to occupy the property to the end of the term of the lease”, that can be a big deal to a tenant who has months left on their lease! The act does not imply, but states the circumstances regarding who qualifies as a bona-fide tenant and what constitutes allowable rent, i.e. not rent substantially below market rent. The text of the law should be read - there is no existing case law that modifies the act. The law is here - http://www.nlihc.org/doc/Statute.pdf
tom,sean, i keep reading the act and to me the boundaries defined for a bonafide lease is if it was signed BEFORE the previous landlord received a “foreclosure notice”… not a change of ownership as you imply. my read is that they are trying to avoid owners in foreclosure entering into leases just to collect the rent / deposit and take off. i have read somewhere that there “the notice of foreclosure” has been interpreted in two ways: NOD and NTS so far in different cases… but you say there has not been any cases natioanally yet based on this act? thx
radaruser, You are correct and I stand corrected. I re-read the act carefully AFTER I posted! The notice of foreclosure is the NTS, so for instance in CA, as you know, that would be at least 21 days before the actual trustee sale, and could be much longer, depending on any previous sale postponements. It is definitely not the NOD date, however.
Seems to me to be ambiguous. I read it as notice to the tenant, but it seems to me that your argument that it should be the NTS is reasonable as well. From my experience judges tend to rule based on what seems reasonable given the facts when there is some ambiguity. My believe is that if it appears the owner and tenant threw something together to try to take advantage of the situation you’ll likely prevail with just the 90 days notice, and if it seems like a legitimate lease to unaware tenants you’ll likely be stuck with the full term.
Sean, The Federal Law cites “notice of foreclosure”, not Notice of Default. In the definitions I’ve read a notice of foreclosure is the same as notice of sale, and by that definition must contain the details of the sale, to wit, date, time, location. For trustee sales in CA the procedure is governed by California Civil Code Section 2924 (and if necessary all the subsections of 2924). You can find it here - http://law.onecle.com/california/civil/2924.html
I’ve read the amendment as well as 2924 Tom. And I understand that you believe that “notice of foreclosure” as cited in the amendment refers to the “Notice of Trustee Sale”. But lets be clear - there is no definitive definition of “notice of foreclosure” anywhere in the law. I think your take is reasonable. But I think one could argue that it is really the Notice of Default, or in this particular case that it is the point in time which the tenant had actual notice of the foreclosure which is how I read it. Keep in mind the intent of the law. The goal is to protect tenants who were not aware of the foreclosure and entered into a lease. To that end, I would not be surprised to see a judge interpret it based on when the tenant likely received notice.
Sean, I appreciate your viewpoint. As we both know, a judge’s opinion and ruling on a case can never be predicted. I think the NOD argument could be made by a client’s attorney, but we’re talking residential rentals here, which is not big $$. Who’s going to pay for that kind of litigation? The legal costs would greatly outweigh any lost rental revenue; don’t you agree? Bear in mind that CA law does not require that a tenant be noticed on a Notice of Default; whereas the NTS is required to be posted on the door of the residence. And since the intent of the law is purported to be for the protection of existing tenants, I think a court would be stretching to rule against the interests of the tenant.