Collecting back rent on foreclosed home

Rent it Right

Q: We purchased a foreclosure property. The tenants have not paid rent for the past 18 months while the bank was the owner. The tenants claim that because the rent was owed to the bank, only the bank is entitled to ask for it (of course, the bank isn’t interested). Can we collect the rent or evict the tenants if they refuse to pay us? –Amir O.

A: When the bank sold the property to you, you purchased not only the physical property, but the contractual rights and responsibilities of the former owner (the bank). Those contractual rights and responsibilities were contained in the lease or, if the lease had run out, in the month-to-month rental agreement (with the same lease terms) that legally kicks in when tenants stay on with permission after the end of a lease.

So, for example, just as the old owner (the bank) had the right to receive the rent on the first of the month, you too can expect the same. And, if the lease promises parking, the new owner must assume this responsibility.

The former owner also had the right to demand back rent, by delivering a "pay or quit" notice. Most owners send these notices after one, or at most two, missed rent payments. With bank-owned properties these days, there’s no telling how much (or more likely, how little) attention is being paid to the property.

But even though a demand for 18 months of unpaid rent is unusual, it’s still a right that you obtained when you took over as the owner.

You’ll need to check your state law to see how much rent you can demand in a "pay or quit" notice delivered to your tenants (in California, you can ask for no more than 12 months’ worth). If you are limited and want to collect the balance, you’ll need to go to small claims court.

One other limitation may limit the amount you will actually collect: Don’t be surprised if you find a judge in an eviction lawsuit (if it comes to that) bending over backwards to find a way not to sock these tenants with a judgment for a full year’s rent.

The tenants may mount a defense, such as the bank’s failure to maintain the property or supply essential services, which they’ll argue excused their obligation to pay rent.

If there’s a colorable case to be made there, they may prevail. And after all, the bank let them stay for a very long time, without taking legal action. It’s hard to imagine an owner ever waiving its right to collect rent by failing to act, but this situation might come close.

Q: We signed our lease about a year ago, and have been paying the rent as specified in the lease — made out to "Downtown Properties Inc.," and sent to the address provided. We’ve always dealt with Mrs. Jones, and she signed the lease.

But we (and others in the building) have received multiple e-mails from "Mr. Jones," telling us to either divide the rent in half and write two checks (making one payable to him, the other to Downtown Properties) or to send the entire check to Downtown one month, then make the entire amount payable to him the next.

We’ve also been told to deliver "his" checks to the downstairs commercial tenant. Mrs. Jones has written to tell us to continue to pay the rent as before. This whole thing seems a bit sketchy — what do you think? –Katie P.

A: Sketchy is a mild word to describe this rather bald attempt by your landlady’s husband to get his hands on your rent money. The only prudent thing to do is to continue to pay the rent as specified in your lease, unless and until the person who signed the lease (Mrs. Jones), or her legal representative, directs you otherwise.

I can imagine that some will be thinking, "Wait a minute, if Downtown Properties is solely owned by Mr. and Mrs. Jones, and especially if the property is in a community property state like California, then Mr. Jones is entitled to his share." Perhaps so, but this argument assumes a lot of facts that we don’t know.

First, even in a community property state, where income earned and assets acquired during the marriage are presumed to be equally owned by the spouses, husbands and wives can make other arrangements. "Downtown Properties Inc." may in fact be the separate property of Mrs. Jones, because she owned it prior to the marriage, inherited it, or set it up using separate funds. And even if it’s part of the community, Mr. Jones is entitled only to half of its profits, not half of its entire income.

Undoubtedly, there’s some marital strife at the bottom of this. The most likely scenario is that the corporation is a closely held family company set up by the couple to own their properties. As evidenced by your experience, Mrs. Jones is in charge — but Mr. Jones doesn’t like how she’s doing business or, more likely, distributing the profits. So he’s trying to get his hands on the rent directly.

And who knows, he may have legitimate gripes. But his proper recourse is to deal directly with his co-owner, not attempt an end-run by siphoning the rent money directly from tenants. If you were to go along with his requests, you’d risk a "pay or quit" termination notice from the person who’s named in the lease as the one who receives (and issues) notices and demands — and that would be the missus.

Write a letter to Mrs. Jones with your next rent check, chronicling the events that you describe here, and stating that you will continue to pay the rent as directed in the lease. Ask that the person who signed the lease — Mrs. Jones — advise you in writing if she would like you to make the rent payable to someone else, or sent to another address.

The purpose of the letter is to leave a paper trail establishing that you are abiding by the terms of the lease, in the unlikely event that Mr. Jones attempts more devious schemes that muddy the waters and imperil your tenancy.

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord’s Legal Guide" and "Every Tenant’s Legal Guide." She can be reached at janet@inman.com.

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