legal q&a
Unchanged Melody
by Various Authors
Q. My building is going be foreclosed. What is my responsibility to my tenants after the bank takes control of the building? Do I need to warn them before the building is taken?
A. Many apartment buildings in San Francisco are being transferred to banks and other financial institutions as a result of the dire economy. In January 2009, one large local owner handed over control of more than 50 buildings to the bank. Increasingly, lenders are becoming landlords. As such, they have the same rights and responsibilities as you, the preceding owner.
When a foreclosure occurs, the tenancy continues as though the building was simply sold to a regular, or individual, buyer. Foreclosures do not affect the rights of tenants under the rent law. San Francisco tenants are therefore entitled to continue with their tenancies under the same terms and conditions of tenancy as before. Unfortunately, many of the national and international institutions that are taking control of these foreclosed assets do not appreciate this fact; and there have been reports of tenants being unlawfully asked to vacate, services wrongfully severed, and tenants unable to pay rent because they simply do not know where to make payments or how to make out their checks.
While no law specifically imposes an obligation upon you as the soon-to-be former owner to apprise the tenants of the impending change in management, a good landlord should transmit information to the residents about the new owner (bank) so that rent can be paid. In addition, to avoid litigation and problems down the road, you should also advise the bank, in writing, about the existence of each tenancy and the pertinent terms. To that end, you should ensure that a copy of the tenant files, which include the lease agreement and terms of tenancy, is transmitted to the lender.
Incidentally, the lender must post the following notification at the property:
Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.
At the same time the notice is posted, the lender must mail a copy of the notice in an envelope addressed to the “resident of property subject to foreclosure sale.”
For your own protection, prepare a ledger of income and expenses for at least the prior 12-month period. Oftentimes, borrowers are accused of pocketing the rent rather than applying income to expenses. Depending on the language contained within the promissory note, the bank may be able to make a claim against you. To avoid this problem, show the lender what you received from the tenants and what you spent on the building. Also, account for each security deposit by documenting your transfer of the deposit amounts to the new owner so that the tenants don’t subsequently make a claim against you.
If you plan on remaining in the building, you can be evicted. The new landlord can serve a Three-Day Notice to Quit premised on a law that compels a prior owner who remains in possession after a foreclosure to vacate. As stated above, this law does not apply to tenants, who remain under the same leasehold terms and conditions as before the foreclosure.
—David Wasserman
Q. I recently bought a building where many of the tenants do not have security deposits. As their leases began many years ago, what is the procedure for getting security deposits from them?
A. Since the leases began years ago, I assume your tenants are now month-to-month. A landlord may change the terms of a month-to-month tenancy with 30 days written notice, pursuant to Civil Code §827. Therefore, to require a security deposit, theoretically you need simply give a notice informing the tenant that the deposit will become a term of the tenancy 30 days later. The amount permitted is limited by Civil Code §1950.5 to the equivalent of two months rent for an unfurnished apartment and three months rent for a furnished apartment.
If the tenant pays, your goal is accomplished. But, what if the tenant refuses? Were your unit in Walnut Creek, San Rafael or Burlingame, you would serve a Three Day Notice to Perform Covenant or Quit. If the tenant failed to comply, you would sue for possession of the premises, spend some money and get another tenant who pays a security deposit.
Unfortunately, in San Francisco, things are never simple. Under §12.30 of the Rent Board Rules and Regulations, “A landlord shall not endeavor to recover possession of a rental unit because of the tenant’s alleged violation of an obligation or covenant of the tenancy, if such obligation or covenant was unilaterally imposed by the landlord and not agreed to by the tenant and either was not included, or is not materially the same, as an obligation or covenant in the rental agreement mutually agreed to by the parties.”
Section 12.20 does provide exceptions for changes in obligations or covenants that are not material, or are required by law to protect the health, safety and quiet enjoyment of the occupants of the building, or adjoining properties, and rent increases or other changes authorized under the Rent Ordinance and Rules and Regulations. Unfortunately, a security deposit does not fall into any of the foregoing categories.
Thus, should your tenants refuse to ante up, there is little you can do. You might sue in small claims court, but since a security deposit really belongs to the tenant, I question whether you would succeed.
Moreover, the day may come when you want to evict the tenant for a just cause reason under the Rent Ordinance. A history of petty disputes, particularly if the tenant wins, becomes an obstacle to an otherwise clean eviction. Where the landlord made demands appearing to be without legal right and the tenant refused, the tenant has the seeds of a retaliation argument if the landlord later seeks to evict on some other ground.
Tactically, I think it is a poor move to become involved in conflicts with tenants over unimportant issues you may very well lose. In San Francisco, with its tenant support networks and free tenant lawyers, a request for a security deposit from a long-term tenant who has not previously paid one is likely to be challenged, and the landlord will not prevail. In the meantime, the negative record created will only make you look bad in any future proceeding, causing more of a problem than any benefit you might realize. For all these reasons, I generally do not recommend attempting to get a security deposit from a tenant under these circumstances.
—Saul M. Ferster
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. David Wasserman is with Wasserman-Stern and can be contacted at 415-567-9600. Saul M. Ferster can be contacted at 415-863-2678. Copyright © 2009 by Black Point Press. All rights reserved.