Earlier this year, the Bethany Group LLC, a California-based owner of apartment complexes, filed for Chapter 11 bankruptcy protection, sending tenants in 15,000 apartment units across 58 complexes into residential turmoil. But, the residents had already been in a kind of domestic purgatory as the ownership group weeks before had stopped paying its bills, including salaries to the employees who worked at the various apartment complexes.

As the Bethany Group teetered, lawns weren’t being mowed, trash was not picked up, and in some cases water bills weren’t being paid.

The implosion of the Bethany Group was large and headline-grabbing, but scores of smaller apartment ownership companies have buckled under high debt loads, making life miserable for existing tenants.

The question is, "What can you do if the landlord of your apartment complex goes bust?"

Obviously, the first answer is to move. But suppose that is not an option because it’s February or March, your children are in junior high, and it would be disruptive to their education to get them placed in another school for the remainder of the year.

So what option does that leave you? There are actually a number of things that can be done, although it’s doubtful any of them will relieve the discomfort in the short term of living in an apartment complex that is not being attended to.

Probably the first thing to do is find out which of the city or county governmental agencies oversees multifamily units and then make a complaint. Sometimes the bureaucrat sinecure is no more complicated that the municipal building and safety department. These local agencies generally have the ability to cite landlords and give them a period of time, such as 30 days, to make corrections on the property or face criminal charges.

If maintenance, etc., has fallen to the extreme, some cities, such as Los Angeles, have programs that allow it to step in, as if the property were in receivership, and take control of the asset. The city will then collect the rents and use that money to fix what is needed to be mended.

If the problem of inhabitability is ongoing, a first choice is to make the repairs to the apartment yourself and deduct those costs from your monthly bill. Another choice is to simply withhold rent if you feel there is a substantial reduction in inhabitability. Finally, if you’re that unhappy, you can take the landlord to small claims court.

There have been some instances where utilities have been cut off at an apartment complex due to the landlord’s nonpayment of bills, but the tenants banded together, struck a deal with the local water or electric company, and had all the utilities restored in the name of tenants.

After weeks of maintenance turmoil, what happens when the landlord mess finally comes to a complete economic breakdown? Things can really turn bad, depending on where you live. …CONTINUED

I checked with attorney Ken Carlson in California, and he told me that when a multifamily property is foreclosed in that state, the bank takes over the ownership and all tenancy is terminated. That means tenants have to vacate the complex within 60 days.

During that time, no rent is owed because the tenants need to save that cash to make a move. The bank, as the successor in interest in the property, has the obligation to pay all security deposits.

Carlson added that municipal laws can override that regulation, such as in Los Angeles, where change of ownership to the bank doesn’t justify terminating the tenant’s contract.

And what happened to folks who lived in the Bethany Group apartments?

The lender, in some cases within 24 hours, was able to bring in receivers to manage the properties. (The last thing the lender wants is a defaulted borrower collecting rents!)

Among those hired was Trigild Inc. of San Diego, a veteran of these types of tough jobs.

"What usually happens is the lender suggests the name of a receiver to the court, and in most cases the judge will go with the suggestion, assuming the receiver is qualified," said Bill Hoffman, Trigild’s president and CEO. "The receiver is an agent of the court."

Before the receiver gets in place, there is usually some kind of panic among denizens of the apartment complex. Employees aren’t sure they have a job, and the tenants aren’t sure who is going to pick up the trash or even if their leases are still good.

"In the first couple of days, what we do is calm everyone down," says Hoffman.

Two things to understand about a property in foreclosure: First, it’s in the best interest of the lender to get the apartment complex in shape because it is the only asset backing up the bad loan. And secondly, it’s in no one’s interest to void leases.

Says Hoffman, "The tenants remain in the same position although a receiver is in possession of the property. We always honor leases."

Steve Bergsman is a freelance writer in Arizona.


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