Malibu Realtor’s Foreclosure Tale

Tenants Beware of unethical Landlords

By: Gracee Arthur

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Desperate times bring out the worst in some people. As a Malibu Realtor for 20 years I have learned to undertake my own due diligence when representing tenants and writing lease agreements for them, as well as when taking a lease listing agreement. Rule of thumb in any real estate market is to check for Notices of Default (NODs) on a property, these indicate the landlord is not current in his mortgage payments. A preliminary title report is also helpful in determining if your potential landlord has been in default or has other liens against the property, particularly property taxes. The Residential Purchase Agreement drafted by the California Association of Realtors primarily protects a landlord but does also include some new protections for tenants requiring landlord disclosures. I moved into a new lease recently and followed all the caveats listed here, yet I discovered two weeks ago the property I have been leasing for the last 6 months is in foreclosure! How can this happen? I will share my story with you to help you avoid being caught in the same situation by a dishonest landlord (in this case a licensed realtor).

I moved into a lovely ocean view duplex in spring of this year. The large property I am residing on has 2 duplexes so there are a total of 4 tenant occupied units. Two weeks ago I read in the local paper my building was in foreclosure with the sale date set for December 27th 2011. I immediately phoned the owner (a licensed realtor) to confront him on this news. His response too me was “Do not tell the other tenants, I will tell them myself.” I was very uncomfortable with this so I told him I would tell the other tenants if he did not do so right away. I also contacted the office of the realtor who represented the property for the owner; the office manager also told me not to tell the other tenants and upset them! As it turned out the landlord did not tell the other tenants, they learned the news the next day when foreclosure notices appeared on their doors. All the other tenants moved in a month or two after I did, which it turns out was after the NOD was recorded on the property. Five days later, after collecting all the rents for October, the landlord sent us all an email saying he was negotiating with the bank and we should not worry and listen to”rumors” just keep paying the rent.

What can a tenant do to protect themselves when they discover their landlord stopped paying the mortgage long before he signed their lease? First of all, paragraph 38 (b) clearly states “Landlord warrants, unless otherwise specified in writing, landlord is unaware of recorded notices of default regarding the property. Any delinquent amounts due under any secured loans to the premises and any bankruptcy proceeding affecting the premises.” In my case the landlord had stopped paying the mortgage prior to signing my lease but the NOD was not issued until June 15, 2011, after I had lived on the premises for over one month. However, all the other tenants signed leases after the NOD was recorded and several of those tenants were represented by the listing office on the property. The best advice for all involved is to consult a real estate attorney as to the best remedy in a situation which goes beyond foreclosure into the possible realm of landlord fraud or intentional misrepresentation.

The “Protecting Tenants at Foreclosure Act” became effective on May 20th, 2009 and applies to foreclosures through December 2012. This law protects tenants with leases following a foreclosure allowing them to occupy the property through the full term of the lease. It does not however, assure, the tenant’s security deposit. It is probably a good idea if a sale date is set to ask the landlord to use your security deposit for the next two month’s rent so you do not risk losing your deposit.

There are notices and some protection for month to month tenants, as well under the “PTFA” act (www.foreclourebuzz.org). As a tenant with a lease, you should also know if your landlord suddenly tries to place the property on the market in hopes of avoiding foreclosure, you are under no obligation to allow access to your unit until proper notice is given you in writing. Any attempt to invade the privacy or “quiet enjoyment” of the tenant is not acceptable in this situation. If you are being harassed to show a property or potential buyers are sent to wander around the property, as has been happening where I live, you should contact the listing realtor and your landlord, as well as a real estate attorney.

“Et caveat emptor” has never been more important a message than it is in these difficult economic times. My personal experience living in a foreclosed on rental in spite of my real estate background and due diligence is a wake up call for all of us.

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