What is Foreclosure?
You may have heard the term and knew it had something to do with the bank taking over the property, but you weren’t sure. Let’s clarify this part so the rest makes sense. When someone buys property, they take out a loan [“promissory note”] which they promise to pay back at so much per month, commonly called a “mortgage”. They also sign a “trust deed,” which gives the bank the authority to sell the property to get their money back if the buyer gets too far behind in the mortgage payments. That is a “Foreclosure.” The bank auctions the property at a publicly announced place and time, and the bank’s trustee, to whom the trust deed was directed, then writes a “trustee’s deed” to whomever buys the property at the auction.
The foreclosure process itself is technical and everything has to be done correctly. There is a “Notice of Default” (NOD) that has to be given by recording in the County Recorder’s Office, posting on the property and by certified mail to the owner. This event will trigger a slew of junk mail from companies that offer to help the distressed owner, since they follow the NOD filings. After 90 days if the payments are not brought current, the bank then issues a “Notice of Sale” by recording in the County Recorder’s Office, posting on the property and by certified mail to the owner. The residential tenant of the property, if any, is also supposed to get a special Notice required by Civil Code §2924.8 by regular first class mail addressed to the “Resident of property subject to foreclosure sale” advising of the impending sale and the possible rights that exist. This is not an eviction notice, but merely a heads-up. The sale is at least 20 days away, usually 30 days.
At the appointed time designate in the Notice of Sale, usually at or near the local courthouse, the bank’s trustee auctions off the property. Often, the highest bidder is the foreclosing bank, itself, so it “takes back” the property and is then the owner. Investors who “flip” property [i.e. buy cheap at auction, then sell on open market for huge profits] will bid on the property, as well, as may potential homeowners who try to buy the property at a discounted rate through the auction. The tenants of the property can bid at this sale, as well, but they need to have instant financing set up to do that, as do all buyers.
Occasionally, the sale may be delayed, such as for refinancing efforts, a regular sale of the property or for a “short sale.” A Short Sale means that the bank permits the owner facing foreclosure to sell the property to someone else in order to repay the bank, but the sale price will be less than what is owed to the bank, so the bank has to forgive the unpaid amount. The sale can also be delayed by the owner filing bankruptcy, which requires the foreclosing bank to get permission from the federal bankruptcy judge to complete the foreclosure process.
As the result of the foreclosure, there is a new owner, even if it’s the bank. The bank then hires a servicing company, who hires a real estate agent to sell the premises. After the sale, it is the real estate agent who will probably contact you first, telling you that you have to get out, and maybe offering “cash for keys.” Sometimes, all you get is a Notice to Quit, and then they file the eviction case.
After the Sale, Then What?
It is important to know that under the US Constitution 14th Amendment’s Due Process clause, you cannot be removed from the property without “due process of law,” which in this case means court. Whether you are the owner or the tenant of that owner, you cannot be evicted from the property other than through a lawsuit called an Unlawful Detainer. Threats of arrest, calling the police, removing your personal property and throwing you out, are simply hollow. Should the police be called in, they know that eviction is done through the Sheriff, and that a lawsuit is required before the Sheriff evicts.
Where the case goes from there depends on whether you are the former owner or the tenant, and whether the new owner follows the law or tries to get around it.
If you are the former owner
The former owner only gets a 3-day Notice to Quit, followed by service of the unlawful detainer lawsuit and the eviction battle, all of which can take as little as a month before the Sheriff locks you out. That’s not much time, and it is possible to delay that further by fighting the eviction, using a lawyer’s help in drafting special papers in the right order. See the Eviction section of this site for more on that.
It is possible to extend your time in possession if you have rented out a room in your house to someone prior to the foreclosure sale. This is because there are special new laws that protect the tenants of foreclosed landlords, so that if your tenant is willing to participate in this, you can ride your tenant’s coattails. That is, the Sheriff can’t evict you without also evicting your tenant, and if they can’t evict the tenant for reasons explained below, then you stay as long as your tenant does.
If you are the tenant of the former owner
Here is the fun part. After Congress passed the Protecting Tenants at Foreclosure Act of 2009 [“PTFA”], California Legislature passed a new and similar law effective January 1, 2013, specifically to give the tenants of foreclosed landlords more time to move, and special rights. The PTFA is now gone, but the California law remains. Under the new law, the rental agreement is no longer automatically terminated by the foreclosure itself, but continued in effect as though the landlord had sole the property. Even a month-to-month tenant is entitled to 90 days’ written notice of termination, after which the new owner could then start an eviction case. However, if you have a lease which has not expired, then you can only be given the 90-day notice of termination if the new owner is, or has, a buyer ready to move into the premises as their primary residence. Real estate speculators and banks who just want to empty the property and sell it rarely qualify to give an immediate 90-day notice to a tenant with an unexpired lease. The result expected by Congress was that you would just start paying your rent to the bank or new owner. Ha, ha, ha. The law also requires the new owner to maintain the premises in habitable condition. Ha, ha, ha, ha!
Those sneaky guys
Instead, the typical situation is that the real estate agent hires an eviction law firm that gives a 3-day notice addressed only to the former owners. The notice usually also includes a 90-day notice to the tenants to leave, and usually also includes special notices regarding your having rights that you should discuss with a lawyer. Rarely does the new owner ever contact the tenant and make arrangements for the tenant to pay rent to the new owner. They don’t want the rent money and they don’t want to be landlords. They want you out, so they can flip the property and make their money on the resale. They definitely don’t want to take on the responsibilities of a landlord to correct habitability defects, since they don’t expect to own it very long, and don’t want to invest more than they have to before resale. Often, the notice includes a FALSE statement that you MUST contact them, give them a copy of your lease, and identify who lives there, in order to preserve your rights to stay in possession; you have no such obligation to even contact them, let alone prove to their satisfaction that you are a tenant. That is simply wholesale fraud that the government doesn’t do anything about. They also refuse to pay your security deposit, saying that you have to get it from your broke former landlord, even though the law says that they owe it to you as the current owner.
Rather than follow the law, here is what the bank/new owners do. Even if they served the 90-day notice, they usually don’t wait the 90 days of the notice before filing an eviction lawsuit. They don’t bother finding out who you are. They file the Unlawful Detainer lawsuit ONLY against the former owners, and include a Prejudgment Claim of Right to Possession form with it. [The Prejudgment Claim is a sort of speak-now-or-forever-hold-your-peace document, where if you want to assert your right to possession, you have to file it, and if not, you lose your rights.] That way, the tenant thinks that this lawsuit is only against their landlord, and is none of their business, so they take no action. Instead of filling in and filing the Prejudgment Claim with the Court, which WOULD give the tenant the right to fight the eviction, the bank’s lawyer assumes you will do nothing. In that case, if you do nothing, the bank gets a default judgment against the former owner, and evicts you within a month, without the rest of the 90 days you were promised in the notice. If all goes as planned, you lose your right to the 90 days, they get possession without a fight, you’re homeless, and they’re rich. Cool, huh?
Winning the Game
What can you do against such fraud and deceit? They are rich and powerful. The assigned eviction judges heavily favor the banks and landlords. It seems hopeless. It is, unless you know what to do.
Although the actual strategy in your particular case will vary, the general plan is to use their mistakes against them, exploit their arrogance, and use the laws and procedures to maximize your time in possession. All the time that they are trying to evict you, you are not paying rent. They could have asked for it, but then they couldn’t have started the eviction case. They just wanted you out, using their sneaky tactics to try to cheat you out of your rights and money.
First step is to file the Prejudgment Claim with the Court. It has to be filed by 10 days after the service of the summons and complaint. That gets you into the eviction lawsuit, so that it IS your business. For there, you have the right to file all of the papers that apply to your case, where you ultimately claim that you didn’t get the 90-day notice prior to the case being filed, so you win. Better than that is that you may end up staying in possession for 6-8 months without paying rent, perhaps only to be paid $5,000 to $10,000 more just to leave. My record is over 2 years, but I have several at a year, and many in the 8-month range. Again, your particular situation will vary on what the other side does, and the strength of your case, but these are realistic figures.
One would think that once you’ve filed your prejudgment claim they would drop the lawsuit and wait out the 90 days, but that rarely happens. Even after we file the papers that they know are my drafting, and they know what I do with these cases, they still move forward to trial. We ALWAYS request a jury trial, because you have a better chance with a jury, which increases their risk and greatly increases their expense. No matter how tough they talk up to that point, 90% of these cases settle on the day of trial, because the Plaintiff buckles. They’re not going to invest $5,000-$10,000 on a jury trial to probably lose, only to have to start over, when they could pay you to go and forfeit the accrued rent. It’s amazing how arrogance fails in the face of your strength.
Set up a consultation to go over the strategy in your case at the earliest opportunity, Waiting too long misses valuable opportunities.