Is my landlord ‘rent skimming’?

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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.

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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