Calif. considers hefty fines for landlords who hide default

Rent it Right

Q: I rented a single-family home two months ago, only to learn today that the owner is losing it to foreclosure; the sale is scheduled for next month. Obviously, he knew about the default when he rented us the house, but said nothing. Do we have any recourse? –Tom T.

A: You’re not the only tenant who learned after signing a lease or even moving into a month-to-month arrangement that the property is about to be lost at foreclosure. That news brings several risks.

First, tenants often experience decreased services, in the way of upkeep and utility payments, as increasingly strapped owners put every penny towards trying to save the property — or, conversely, realize they’re going to lose the property and just stop caring.

Second, after the foreclosure sale, tenants face many uncertainties — where should the rent be sent? To whom should maintenance requests be made?

Most importantly, many tenants don’t realize that they have protections following a sale (most leases will survive a sale, unless the buyer intends to live on the property). As a result, tenants fall prey to "cash for keys" offers, moving out for relatively paltry sums when they could have stood their ground. And finally, tenants face difficulties getting their security deposits back. Defaulting landlords usually don’t have the money and are long gone; new owners may simply refuse, making it necessary to file a small claims lawsuit to get the money from the owner.

Given these likely consequences, it makes sense to require landlords to inform applicants of the existence of a default notice before the applicant signs a lease or rental agreement. A few states have such a requirement (Minnesota, Nevada and Oregon), and California legislators are currently considering such a law (applicable to properties of one to four rental units).

The California bill (SB 1151) would enable a tenant to walk away from a lease or rental agreement if the landlord failed to make the required disclosure, and would provide for damages of twice the monthly rent, or actual damages, whichever is greater, if the tenancy is terminated by the new owner.

Interestingly, the California Apartment Association supports this bill. They point out that residents of single-family rentals are more likely to lose their rental upon sale at foreclosure than apartment dwellers. This makes sense, because people who buy multiunit properties are less likely to plan to live there than those buying single-family homes (and an owner can live in only one unit, after all). The California bill would still enable the new owners who buy at the foreclosure sale to oust a tenant upon 90 days’ notice — but if the default was not disclosed, the tenant would be entitled to damages. Of course, the hope is that landlords who learn of their disclosure duty will comply, giving tenants the information they deserve to make an informed rental choice.

Q: I’ve been challenged by an applicant who is comparing me to a competing apartment complex down the street. He said, "That property will accept me without a new credit report or talking to my employer. That landlord trusts me, why won’t you?" In fact, I suspect this applicant will be fine, but I’m wary of "going with my gut." What’s the best answer and course of action? –Raoul M.

A: Your neighbor down the street has been very lucky if his success is built on not thoroughly checking his applicants’ rental pasts. Sooner or later, he’ll encounter one of the professional scammers that one hears about on the news: very presentable, smooth operators who talk their way into an instant acceptance. Once on the property, they begin fabricating reasons not to pay the rent, and stay on while the owners try in vain to get them to leave short of an eviction lawsuit. At that point, they may leave if they’re given enough cash to clear out. It’s a very nasty situation.

You’ll need to be careful in how you respond to your applicant, who probably is perfectly OK. Don’t defensively tell him that you have to check his information from the source, because that’s the only way you can be sure he’s telling the truth. Saying it this way will only alienate him further — you’ve just validated his suspicion that you don’t think he is a truthful person.

A better way is to approach it this way: Remind your applicant that, to be on the safe side fair-housing-wise, you have to treat every applicant equally. This means that if you require credit reports and employer verification from only certain applicants, and if any of these applicants happen to be members of a protected class, you risk a fair housing complaint, even if the reason for your demand has nothing to do with their status as a protected person.

For example, requiring a report and employer verification from someone who has no rental history may make sense, but if that person is also a member of a protected group (a certain ethnicity, for instance), the applicant may think that your requirements stem from the color of his skin, not his lack of rental history. If he reports your action to a fair housing group, you may be looking at a fair housing complaint.

Besides pointing out that fair housing laws practically require you to ask every applicant for a report and employer verification, mention that these practices will result in a better group of residents — people who will be the applicant’s neighbors, if he moves in. Tell him that when every applicant is screened carefully, you do a lot to minimize the chance that someone who is not acceptable will end up living next door. Landlords aren’t the only ones who don’t want problem tenants — these residents can make life very difficult for those unfortunate enough to live nearby.

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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