Renters out when homes foreclose

Photos by Melania Mahoney
Renters probably feel more secure than their homeowner neighbors during the current economic crisis, but now is not the time to let down their guards. Home foreclosures of rental properties are on the rise and it seems no end is in sight. Many renters are unaware of what will happen to them when their landlord’s property faces foreclosure. One thing is for certain:  renters can expect their lives to be turned upside down.

Linda Siemer, a 51-year-old single mother of a college junior, had been renting one of the 11,000 Bay Area residences that were repossessed by their mortgage lenders last year. For 5 years, she had lived with her daughter, 2 dogs, and 2 cats in a single-family home in El Verano. Her landlord was also her employer. His financial problems led not only to his properties going into foreclosure, but the shuttering his business.
“Three weeks after the foreclosure notice was posted on the door, the property went to auction,” said Siemer, who was born and raised in Sonoma Valley. “There were no bids so the house went back to the bank holding the mortgage. Within a couple of weeks I was contacted by the realtor in charge of handling my eviction, who was very understanding and compassionate.”
Tenant’s rights in such situations are minimal. The landlord is not required to give tenants notification of foreclosure. Therefore the only notice a tenant may receive is a notice being tacked to the front door disclosing the status of the home, condominium unit, or apartment building. While the landlord is legally required to honor any signed lease, the foreclosure company is not.
“I was given a 30-day deadline to leave the house voluntarily and would receive ‘cash for keys,’ which the bank offers renters through the realtor of the property,” Siemer explained. “The property needs to be completely cleared of any belongings or debris and the occupant gets the cash only if the bank doesn’t have to pay a reclamation crew to clean up the property.”

Eviction regulations vary town by town, and those towns with rent control usually work to a renter’s advantage in foreclosure situations. Otherwise, renters are subject to state law, which requires 30 days notice. The foreclosure process may take several months to complete and tenants may be allowed to live on the premises until that time. Renters will be required to pay rent in full during the foreclosure proceedings.
Management companies may find themselves in the middle of foreclosure situations. Property owners are sometime reluctant to notify both their renters and the companies they hire to manage their properties. Renters should contact management groups if they suspect an impending foreclosure. Woodfield Properties owner Cathy Woods is presently facing its first foreclosure of a property it’s managing.
“The owner is denying any problems even though the bank has actually come out to re-key the property, in which the tenants are still living,” said Woods, who is also a broker at Sotheby’s Real Estate in Sonoma. “We have told the tenants, who have been there for less than a year, to wait and see what is going to happen. I believe in full disclosure and will notify tenants if I think there is something they should know about the property they are renting.”
In most cases, it is best for renters of properties in foreclosure to find a new place as soon as possible. They should put their plans to vacate in writing as typically required in the lease agreement, to make certain they will not be charged any fees for leaving the property early. Either the property manager or the landlord will then be able to assure renters they will not face penalties for essentially breaking their lease.
Tenants are at risk of losing their security deposits if their landlord’s property has gone into foreclosure. Foreclosure companies are not required to return security deposits, but may offer financial assistance to help to offset moving costs. Property managers do not hold security deposits. The bank that forecloses is obligated to repay any security deposits, but too often they fail to follow through.
According to Ken Carlson, whose web site caltenantlaw.com is a great source for tenants, the 30-day notice most be served on the tenant either in person or by mailing plus posting on the front door. This can happen only after the lender has recorded a trustee deed certifying that it has repossessed the home. He writes that eviction only happens after a filing by the lender and a judge’s permission.
“We’re seeing many former home-owners who have had their own properties foreclosed and are now looking to rent,” said Kimberly Buchanan, who is an agent with Sonoma Management in Sonoma. “Many property owners are being very understanding to these new renters and are willing to look beyond a foreclosure if the potential renter has otherwise good credit.”
“It is an unfortunate situation for all involved when the owner of a rental property is facing a foreclosure, especially for the renter who will need to find another home to rent,” said Gayle Arrowood, branch manager at RPM Mortgage in Sonoma. “However, from a lender’s perspective, it is important that the property be vacant if the new owners are planning to live in the house rather than continuing rent it out.”

Siemer was able to find another home to rent, but then found herself facing another foreclosure. Now living with friends, she is both searching for employment and a home to rent. She is thankful for friends and family who have helped with her many moves and that her daughter, who is studying abroad. is not faced with so much turmoil. Siemer is finding it difficult to secure another affordable home that accepts pets.
“On a humorous but somewhat serious note,” she said, “it is time for renters to interview landlords thoroughly and it may not be out of the question to ask to see a current mortgage statement. What I learned was that I have great friends who have been totally there for me throughout the last few months.”
RPM Mortgage, 827 Broadway, Sonoma; 707.474.3363. Web site:  rpm-mtg.com
Sonoma Management, 662 Broadway, Sonoma; 707.938.3177. Web site: sonomamanagement.com
Woodfield Properties, 678 Broadway, Sonoma; 707.996.3060. Web site: woodfieldproperties.com