Tenant Info: Building Is Being Sold

Foreclosure
and Sale of Building

Foreclosure is when an owner can’t make mortgage payments on a property and the bank or mortgage company reclaims it. There are currently a lot of foreclosures happening throughout the country. In San Francisco, tenants have rights in a foreclosure. The following information only applies if you live in San Francisco.

If you're under rent control and/or have "just cause" eviction protection, you have the right to stay where you are. Foreclosure does not mean you have to leave. You don’t have to do anything except continue to pay the rent and follow the terms of your lease.

What if the bank or mortgage company says you have to go? What if they give you a written eviction notice or verbally tell you to leave? Rent control gives you just-cause eviction protection, which means a landlord can only evict you for one of 14 causes. Foreclosure is not one of them. Just as sale of the building is not a just cause.

If you live in a single-family dwelling and you don’t have the price control part of rent control (that is, your landlord can raise the rent as much as she wants every year), you may still have just cause eviction protection. If the house was built before June 1979, then you are under just cause and everything above applies.

NOT UNDER RENT CONTROL

If you are not under rent control or do not have just cause protection (if your place was built after 1979), then in San Francisco you are covered under the newly enacted 37.9D of the rent ordinance that says you can't be "evicted by the person or entity who took the title through foreclosure except for just cause." That means you have just cause as long as the bank or other entity owns it. Once it's sold to a buyer, then you lose just cause and can be evicted with a 30 or 60-day notice, depending on whether you've been there under or over a year. Unless you're still under a fixed-term lease when the new owner takes over, at which point he or she needs to wait until the lease is up to evict.

PAYING THE RENT

As stated above, if you’re under rent control, you should continue paying the rent to the bank or mortgage company or whomever has taken over the property. If they refuse to accept the rent, then write them a letter advising them that you are opening up an escrow account and putting the rent money in it until they ask for it.

Don’t forget to actually open up the account. Every month, you should first attempt to pay and when refused, put the money in the account.

By the way, it is not your responsibility to track down to whom you’re suppose to pay the rent. Just make sure you have the rent set aside.

If you receive an eviction notice (3-day, 30- or 60-day) saying that you have to leave because of the foreclosure, you can file an “alleged wrongful eviction” petition with the SF Rent Board, if you are under just cause eviction protections. State that the reason you believe the eviction is wrong is because there is NO just cause.

If you recieve court eviction papers (summons and complaint), you should seek legal help right away. Even if the eviction is illegal, you need to follow the right steps to win the case. Go to the Eviction Defense Collaborative for help with this.

ENTRY ISSUES

Once the bank or mortgage company takes back the place, they may want to enter to show it to prospective buyers. They have to follow the same rules as any landlord regarding entry. Under California Civil Code 1954, they must give you a written 24-hour notice before they can come in. You have some wiggle room to negotiate for a time that is good for you. The law says that they can show it during normal business hours, which is interpreted to mean Monday through Friday, 9-5.

Note that you cannot prevent them from showing the place. Under rent control that is a just cause for eviction.

LEASES

In the past, all leases were extinguished at the time of a foreclosure. However, because of recent changes in federal law, all leases continue to be in force even after a foreclosure. In addition, the Rent Ordinance's rent eviction controls (just cause) apply to all foreclosed units while owned by a bank, as well as to those normally under rent control.

SECTION 8

Federal law: The landlord may not terminate the section 8 lease without cause -- that's according to 24 Code of Federal Regulations, Section 982.310(d). The landlord may terminate the lease for “other good cause,” including “business or economic reasons,” which means “sale of the property,” according to this same law. However, the landlord may not terminate the lease for “other good cause” during the first lease term. If the landlord tries to evict using sale of the property as a business or economic reason, the tenant may force th e landlord to demonstrate the business/economic benefit of the eviction. All Section 8 tenants in California have just cause eviction protection, even at the end of a lease term.

SECURITY DEPOSIT

Banks evicting tenants have raised the argument that they are not successors in interest, and are therefore not responsible for returning tenants’ security deposits pursuant to CA Civil Code 1950.5(h). Under that section, the old owner and the new owner are jointly and severally liable for the amount owed to the tenant. At this time, we recommend that tenants insist on their security deposits from the banks and, if necessary, file a claim in Small Claims Court.

UTILITIES

PG&E says that it will not shut off electricity and gas if the place has been foreclosed, even if the landlord owes money. Tenants will be able to put the bill in their names, though if the landlord is responsible contractually then the account should be in the name of the bank. It’s best to consult with one of our counselors about this (see hours in our counseling page), since PG&E has not put this policy in writing. The utility company has established a hotline for renters with questions about utility shutoffs: 1-800-850-9587. Please let us know about your experiences with PG&E. The SF Water Department should not do a shut off and will put the account in the tenant’s name. Call 551-4762 for more info. Again, let us know your experiences with the Water Department.

A new landlord cannot raise the rent above the allowable amount, unless she is banking on rent increases the previous landlord did not take. Those increases have to be the allowable ones for the years in question. For example, if your previous landlord did not take increases in 2000 and 2001, then the new landlord can bank 2.9% for 2000 and 2.8% for 2001, totaling 5.7%. The rent increase requires a written 30-day notice. If the banked rent increase is 10% or more, a 60-day written notice is needed.

A new landlord is bound by the rules of rent control, just as your old landlord was. Which means simply that he can only evict you for a just cause. Unfortunately, just cause includes two that he could invoke to displace you. They are:

The landlord might be able to move into your apartment. But he has to follow the rules of owner move-in (OMI) and the limitations spelled out in the law. (See our eviction section for more info on OMI. Click on "tenant rights" above and then "eviction.")

At present, this is the biggest threat facing any tenant whose building is being sold, but only if that building has fewer than six units (though any size building can be Ellis-Acted). Here's how the typical scenario works:

The landlord sells the building to a real-estate speculator who then files an Ellis Act eviction, clearing the building of all the tenants. Ellis allows a landlord or speculator to get around rent control. Normally, a landlord would not be able to evict the tenants unless she had just cause. Ellis gives the new owner "just cause" to clear out all of the tenants at one time. The law is often justified by landlord advocates as defending the landlord's right "to go out of the business of being a landlord." But if a landlord wants to stop being a landlord, she merely has to sell her building. The reality is that Ellis was conceived by realtors desiring to get around rent control--and make lots of money. Those evicted under Ellis get 120 days (four months) to move unless they're seniors or disabled, in which case they have a year. They also receive relocation money, (see our section on evictions for a relocation chart). The speculator finds people to buy into the building as a tenancy in common. They share a single mortgage. For example, if it's a three-unit place, he finds three people. These three new owners sign an agreement to each occupy a unit. Once they occupy their units, the three owners file for condo conversion. These days, because of a law passed about two years ago, speculators and landlords are not doing direct Ellis Act evictions. They are sending long-term tenants letters threatening Ellis and offering a buyout. instead You do not have to accept the offer. Call or stop in for counseling at our office. To see our times, click "counseling" above.

In addition to the inconvenience of showing your apartment (see below), the other thing you need to be concerned about while your building is being sold is what to do about the Estoppel Form. When a buyer is interested in a building, the realtor will send you a form called "Estoppel" which asks a lot of questions. You are not legally required to fill it out. You may also receive a form asking if you are in a protected category, i.e., a senior or disabled. If you are in one of these protected categories, then you are safe from an OMI and receive a year to move in the event of an Ellis eviction. It is important to let a potential landlord know this, so you want to return this form.

As far as the Estoppel, if you choose not to send it in, then it is recommended that you draw up your own letter to the new landlord. The most important reason is that you want to assert any rights you have that are not specified in your lease because there is the danger that a new landlord could try and evict you for breach of lease when you assert them.

For example, if you're not supposed to have a pet but the previous landlord always allowed you to have one, then you need to let a new owner know that. The same for use of the garden, storage space in the garage or basement, etc.

You can send a letter, such as: "I am so-and-so, I live at such-and-such, apartment #_, I pay $___rent, I have a cat and a gold fish that the landlord knows about, I use the garden to sunbathe, etc."

Note: Sometimes realtors will tell you that the Rent Board requires that you send in the Estoppel Form. It's not true. Another thing: If you do not assert your status as a senior or disabled, it may cause problems for you if the new owner does an OMI. Send in that form, if applicable.

You cannot stop the landlord from showing the apartment while she is selling the building. To do so would be grounds for eviction under the rent ordinance (just cause #6). You can, however, negotiate for times that are good for you. Under California Civil Code 1954, a landlord is supposed to show the place during normal business hours (which is presumed to be 9am - 5pm, Monday through Friday). She is also supposed to give you 24-hours written notice before entering. You can say, "That time is not good, how about such and such a time instead?" Try and negotiate for times that work for both of you.