Foreclosure of Rental Properties

Currently, treatment of holdover tenants in a foreclosure property is governed by provisions in federal law, which pre-empts state law.  This law, which will sunset on December 31, 2014, states that if a rental property is sold in a foreclosure sale, the new owners are required to provide the tenant with a 90-day notice to vacate the property.

If a tenant has a bona fide lease longer than 90 days, the new owner must honor it unless he or she plans to occupy the property themselves.  A lease is not “bona fide” if it was not an “arms length” transaction, or if it is for a rate substantially below market.  C.A.R. has been opposing two bills – AB 2610 (Skinner) and SB 1473 (Hancock), which, as introduced, would have enacted a California law which permanently incorporated the federal rule but without the “bona fide” lease protections for owners, thus making the 90-day notice requirement permanent, and validating ANY lease.  Due in large part to the efforts of Realtors (R), who participated in Legislative Day, C.A.R.  successfully obtained amendments to codify owner protections of the existing federal 90 day notification requirement in California law with a sunset date of December 31, 2019, and eliminating language that would have made it impossible to challenge fraudulent leases.   The net effect is a 5 year extension of existing (federal ) rules.  With these amendments, C.A.R. will no longer oppose these measures.  AB 2610 has passed the Assembly Floor and SB 1473 has been passed by the Senate.

C.A.R. also opposed provisions in the Attorney General’s proposal to enact a “Nevada approach” prohibiting so-called “robosigned” documents.   The proposal will: force those filing a Notice of Default (NOD) to certify the lender’s ownership (“chain of title”) and that the lender has possession of the note and or deed of trust;  create a very broad definition of a “robosigned document; and impose civil penalties for filing that document;  create a new private right of action for a borrower to seek an injunction for a pending trustee sale.  Again during Legislative Day, Realtors (R) lobbied their legislators and asked them to oppose these provisions.  C.A.R.’s Government Affairs team continues to work with members of the Conference Committee created by the legislature to draft a final piece of legislation to ensure these sections are not included in the final measure.  To date, no one has yet seen a final draft of the proposed legislation, but it is scheduled to be released in early June.

C.A.R. will provide members with an update as the Conference Committee moves forward.

California Association of Realtors (C.A.R.)

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