Foreclosure/Sale of Building

Building for Sale
What happens if as a renter if your building is up for sale? If you’re under rent control, the simple answer is that nothing changes when the building is for sale. A new landlord is a new landlord. She cannot raise the rent (unless she is banking on back rent increases that the previous landlord did not take), unilaterally impose changes in the terms of your lease (including giving you new house rules), evict you (except for a just cause, if you’re under rent control) or not honor agreements you had with your previous landlord.

RAISING THE RENT
A new landlord cannot raise the rent above the allowable amount, unless he is banking on rent increases the previous landlord did not take. The increases have to be the allowable ones for the years in question. For example, if your previous landlord did not take increases in 2013, 2014 and 2015, then the new landlord can charge you those three years and the current one. 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.

ESTOPPEL
In addition to the inconvenience of showing your apartment, 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, unless your lease specifically says that you are. 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 have protections in 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 right away.

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 an address, 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 unless as stated above, it’s in your lease. 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 or Ellis. Send in that form, if applicable.

SHOWING THE APARTMENT
You cannot stop the landlord from showing the apartment while he 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). He 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. The only exception is if he informed you in writing of the upcoming sale 120 days in advance. Then he can give you verbal notices (per telephone or in person) of the showings.

EVICTING TENANTS
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:

OMI
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.) Don’t accept that just because a landlord says he or a relative is moving in, that’s really the case. Call or drop in for counseling.

ELLIS ACT
At present, this is a threat facing any tenant whose building is being sold. Here’s one scenario:

The landlord sells the building to a real-estate speculator who then files an Ellis Act eviction, to try and clear 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 has just cause (and sale of the building is not a just cause). Ellis gives the new owner “just cause” to clear out all of the tenants. This law is often justified by landlords and speculators 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. She doesn’t have to evict the tenants. But she gets more for the building if it is “delivered vacant.”

Ellis is a way 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 or three couples. These new owners sign an agreement to each occupy a unit. Once they occupy their units, the owners file for condo conversion.

These days, because of a law passed about two years ago, speculators and landlords are not doing as many Ellis Act evictions. They are sending long-term tenants letters threatening Ellis and offering buyouts, instead. You do not have to accept the offer. Recently, a new law went into effect regulating buyouts. A landlord now cannot even discuss a buyout without giving a tenant a disclosure form from the Rent Board. See section on buyouts on the eviction page for more details.

FORECLOSURE

Foreclosure happens when a property owner can’t make mortgage payments on a property and the bank or mortgage company reclaims it. In some foreclosure cases, there are tenants living in the houses being foreclosed. In San Francisco, tenants have rights in a foreclosure. Please note that 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.

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-, 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 protection. State that the reason you believe the eviction is wrong is because there is NO just cause.

If you receive court eviction papers (summons and complaint, also known as “unlawful detainer”), 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.

SECTION 8
Federal law says that a landlord can evict a tenant with Section 8 for a ‘good cause,’ which offers tenants less protection than just cause. Good causes include non-payment of rent, being a nuisance, business or economic reasons, etc. In San Francisco, in buildings built before 1979, tenants, including those with Section 8, have just cause protection, even when there’s a foreclosure. Tenants with Section 8 in buildings built after 1979 have just cause in a foreclosure until the building is sold to a new landlord. Then they have ‘good cause’ again.

The bank and the new landlord cannot change the terms of the contract.

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 as long as the tenants put the bill in their names, though if the landlord is responsible contractually then the account should be in the name of the bank, not the tenants. 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. As for the SF Water Department, call 551-4762 if water is shut off or there’s the threat of a shutoff. Let us know your experiences with the Water Department, too.

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