California Assembly Bill 2586 currently under consideration by the California Senate is the subject of a recent article by Realty Times. The Bill

• Defines landlord and tenant in provisions governing tenancies.
• Authorizes a tenant to deduct a utility payment from the rent.
• Relates to the transfer or return of any security remaining after termination of the tenancy due to a trustee sale.
• Defines a successor in interest as it applies to an interest acquired in mortgage defaults.
• Requires a mortgagee, trustee, servicer or beneficiary to give notice of a possible foreclosure sale.
• Provides procedures governing notice of utility shutoff.

Legislation Aims to Protect Tenants in Foreclosed Properties
by Bob Hunt

Among those who might be considered innocent victims in the current wave of foreclosures, tenants caught up in the process would have to be near the top of the list. Through no doing of their own, families and individuals who are renting a property that goes into foreclosure are liable to have their lives seriously disrupted.

Like many states, California has a variety of tenant-protection laws that govern landlord-tenant situations. Unfortunately, though, California laws do not always make clear that the same rules apply when a new owner, a "successor in interest," acquires a tenant-occupied property through foreclosure. Moreover, these are not isolated instances. The Western Center on Law & Poverty indicates that 20 - 25 percent of residential foreclosures in California involve rental units. In 2007 that translated to approximately 20,000 renters who were affected.

Currently working its way through the California legislature is a bill that seeks to address some of the problems that arise. Assembly Bill 2586 (Torrico) has passed the Assembly and is now being considered in the Senate. The bill was introduced in response to numerous reports of tenant harassment -- activities designed to "push" tenants out of foreclosed properties sooner than would be required by a thirty-day eviction notice.

Under existing law, for example, a landlord may not attempt to terminate a tenancy by taking such actions as changing the locks or stopping utility services. By making it clear that a successor in interest who acquires a rental property through foreclosure is a landlord for purposes of the law, AB 2586 would provide a legal basis for preventing such harassment activities and/or for collecting damages should they occur.

If a landlord loses a rental property through foreclosure he is supposed to transfer security deposits either to the new owners or back to the tenants. In reality this is unlikely to happen. AB 2586 makes it clear that, should security deposits not be transferred or returned, the successor in interest (i.e. the new owner who has acquired the property through foreclosure) is jointly and severally liable for repayment of the security. The successor in interest may not require the tenant to post additional security to replace the amount that was not transferred by the former landlord/owner.

AB 2586 extensively addresses the matter of utilities. This is an issue in situations where the cost of one or more utilities has been included in the rent and payment of the utility bills has been the responsibility of the landlord. When a landlord loses a rental property in foreclosure he or she is likely to have let the utility bills go unpaid. Even if that is not the case, it is equally possible that the new owner won't be paying them. The potential result is that the tenant will have the utility service discontinued, often without ever having received a notice.

AB 2586 requires that in such a situation the utility must provide at least 15 days notice to the resident(s) that the service is scheduled to be terminated. The notice must be posted as well as mailed to "Any Person Renting Property At ____". It must contain a statement on the outside of the envelope in large print saying, "Utility service to this address may be cut off soon." The notice shall then inform the residents that they have the right to have the service put in their names, without being required to pay any delinquent amount that is currently due. The notice and the statement on the envelope must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean (California's major spoken languages).

AB 2586 will not solve all the problems that foreclosure may cause for a tenant. Except in very specific circumstances, a successor in interest through foreclosure may give notice to a tenant to leave even though the tenant may have had a valid lease. Even tenants who are able to stay may find that they will have to renegotiate the terms of their tenancy. At least, though, the passage of AB 2586 will provide tenants in these situations some protections that they hitherto have not always received. 
 

To view the online article, please click here.

To view a copy of the Bill, please click here.

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 500 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.