Is my landlord 'rent skimming'?

Rent it Right

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Luxury Connect | Oct. 16-18 | Beverly Hills

Q: The property I’m renting was lost in foreclosure in April 2009. The landlord told me he just wasn’t able to keep up with the payments, but it sure seems to me that he’s been living pretty well recently — he’s got a new car, and just got back from a weeklong vacation in Hawaii. I’ve got a year’s lease, with nine months left, and this owner bought the place six months ago. I’m afraid I’m going to be told to leave by the bank or the new owner. Do I have any recourse against my landlord? –Fred S.

A: If your state has a law against "rent skimming," you may have grounds to go after this landlord, though it won’t stop a new owner from terminating your lease. Foreclosures occurring after May 20, 2009, are subject to different rules, and your lease likely would have survived if the foreclosure had happened just a month later. As you’re not in this fortunate situation, however, we won’t dwell on what could have been.

Rent skimming means using rent proceeds from residential property during the first year (or more) of owning the property without first applying that revenue to payments due on a mortgage or deed of trust. As you might imagine, the purpose is to protect the interest of the bank and the seller. States vary in the length of time that rent-skimming prohibitions apply (in California, surprisingly, it’s only one year).

When a tenant is injured by a purchasing landlord’s rent skimming, states typically provide for very specific remedies. For example, California tenants who must leave their rentals prematurely due to a foreclosure sale resulting from rent skimming can sue for their actual damages, including their lost security deposit and moving expenses. If the landlord’s behavior was particularly outrageous, judges can award exemplary, or punitive damages, meant to punish such behavior. And they must award punitive damages if the landlord was already two or more months behind in his payments at the time the tenant rented the premises. In addition, multiple acts of rent skimming are criminal offenses.

There are some defenses to rent skimming. For example, depending on state law, a landlord can escape liability if he used the rental revenue to pay health care providers for necessary and unforeseen treatment of himself or his dependents; or if he used it to pay contractors to make the rental premises fit and habitable. California requires that these payments be made within 30 days of receiving the rent, and that the landlord had no other source of funds to make his payments.

As you can see, states take rent skimming quite seriously. From the sounds of things, it appears that your landlord may well have been using your rent payments for purposes (a new car and a vacation) that don’t relieve him of the requirement that he apply the rent towards his mortgage.

If you’re forced to move prematurely and want to try to recoup your losses, consider bringing your case in small claims court. Be sure to document your moving costs, including any additional rent you’ve had to pay to secure a comparable place. It won’t hurt to take a few photos of the landlord’s spiffy new car, and save those "wish you were here" postcards he sent you from the beach. …CONTINUED

Q: I’ve recently taken over managing my father’s rental properties. To my surprise, I discovered that the tenant I thought was living in one unit is actually a subtenant — the original resident turned the place over to him six months ago, and left. The subtenant does pay the rent, but is not someone whom I or my father would have rented to — he’s inconsiderate of other neighbors, leaves his balcony and porch a mess, and is unpleasant to deal with. The original lease specified that any subtenancy must be approved, but my father was never approached. Isn’t this an unauthorized subtenancy — which allows me to terminate the underlying lease with a few days’ notice? –Jim B.

A: Landlords wisely require that subtenancies (renting part of the unit to another person while the tenant also lives there, or renting all of the unit for a period of time while the original tenant leaves but returns) and assignments (turning the whole place over to someone else and leaving permanently) are subject to their approval. The reason is simple: A subtenant or assignee is a new occupant who, like any resident, should be checked out for "good tenant" characteristics. Even when the newcomer isn’t paying rent directly to the landlord (as often happens in a subtenancy), other issues like good neighbor qualities are important to confirm. The minute a subtenant shows up (or someone else pays the rent), a wise landlord will investigate. Then, either the landlord screens the newcomer and approves him or not, or the landlord terminates the lease of the original tenant (which also disposes of the newcomer) for violating the clause against unauthorized occupants.

It sounds like you’ve taken over your father’s business just in time. Part of a landlord’s job is to monitor, within the confines of his state’s privacy laws, who lives in his rental units. This doesn’t mean standing at the front door morning and night with a tenant roster and checking off who leaves and who returns. But at the very least, it means noticing whose checks are coming in for which unit. It sounds as if your father let things slide … and with that inattention went your right to enforce your lease clause prohibiting unauthorized subtenancies. In legal lingo, your father’s willing and repeated cashing of the subtenant’s rent checks resulted in the waiver of his right to enforce the subtenancy clause.

You’re probably hoping that you have other independent grounds to end this tenancy short of its expiration date. The behavior you describe doesn’t seem to warrant a three-day (or thereabouts) notice that landlords use to terminate for cause, because the relatively mild slovenliness you describe doesn’t fit within the legal definition of "waste" or "nuisance." Once the messiness becomes a health hazard or results in significant property damage, or the subtenant’s behavior becomes threatening or abusive, you might have solid reasons to terminate for cause.

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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