Q: We rented a nice single-family home a few months ago, but were shocked to discover that the owner was in the midst of foreclosure. The bank now owns the house and threatens to evict us if we don’t move, even though our lease has several months left on it. Even if we win, we’ll have an eviction notation on our record. Is there anything we can do about this? –Harold and Jack
A: The bank is taking advantage of a fact of life in most places — landlords screen potential tenants, screening companies unearth eviction proceedings, and they report them without noting how the case turned out. When landlords see the line that says, "Eviction filed," they assume the worst — that this applicant is a bad apple who should be rejected. Some will admit that this is unfair, but without evidence, they just won’t take a chance.
Very few states have addressed this problem. California has the best solution — it "masks" the eviction filing at the courthouse for the first 60 days after the eviction lawsuit has been filed, making it unavailable to screeners and most other searchers. After that, the mask is lifted only if the tenant lost within those 60 days. Because most unlawful detainer lawsuits brought by banks are not settled within 60 days of filing, the record will remain permanently masked, even if the bank eventually wins. This prevents the kind of nasty pressure you’re experiencing from your bank.
Tenants in some states, such as Washington, have asked courts to change court records so that only their first name initials appear on the docket sheets (screeners need both names to search). In New York, a lawsuit several years back resulted in an order that a large screening company indicate how evictions were resolved, beyond the misleading "Eviction filed" notation they had been using.
But the best approach is the one crafted by California legislators, which protects tenants at the source (the court record) and effectively prevents heavy-handed maneuvering by a foreclosing bank.
Q: After we bought the apartment complex we now own, we discovered that it’s got tenants from hell — they are chronically late with the rent and are now several months behind. It’s going to take a lot of time and money to get them out. Shouldn’t the sellers have disclosed this before we purchased? Do we have any recourse against them now? –Barry and Sue
A: I’m guessing that you, like many readers, are thinking back to the purchase or sale of your own residence, which was probably accompanied by a lengthy disclosure statement.
Residential property disclosures typically cover issues such as known defects to the structure; recent flooding; presence of lead-based paint or lead-based paint hazards; earthquake likelihood; system features such as heaters, electrical and sewer; and zoning. Some disclosure forms include legal issues, like legal disputes concerning the property, community association fees, and so on. And strange as it may seem, you may see information on suicides at the property, nearby criminal activity, or excessive neighborhood noise.
Importantly, disclosures of this type pertain to residential, not commercial property (in most states, a residential property is one that contains up to four dwelling units). When it comes to commercial transactions, it’s a whole different story. That’s because the law assumes that commercial sales involve sophisticated buyers who almost always have their own brokers; they are in a position to learn information about the property on their own. In short, they don’t need to be protected.
Commercial buyers need to complete what’s called their "due diligence." Their brokers and attorneys have lengthy checklists, which prompt them to look into the status of the property’s title, applicable zoning, the property’s physical condition and any environmental hazards, the operating and financial health of the property, and — most important for you — the situation with regard to any tenants in the building. (Tenants with leases typically become the buyer’s tenants, too.)
Real estate lawyers have a way to learn about the status of any tenants. They ask the seller about the financial condition of the tenancies, which would include the history of late rent. And, they ask tenants to complete an "estoppel letter," in which the tenant states whether it is in compliance with the lease — and whether the tenant thinks the landlord is in compliance, too. The estoppel letter gives the buyer a snapshot of tenant relations, and if the waters are rough, the buyer is at least on notice, and can back out if needed.
You describe your purchase as an apartment complex, so chances are it’s considered commercial property that is subject to these "buyer beware" rules. If your broker did its due diligence, it’s hard to understand how these problems failed to show up. If due diligence was not done, however, your beef is with your broker. You’re not likely to get the deal undone, but you may be able to press for damages (your cost to evict the deadbeat tenants).