Legal Question in Real Estate Law in California

Re: Bankruptcy and foreclosure

I'm not sure where you received this information, but it may or may not be the truth, depending upon what the bank is willing to do. In the strictest sense of the law, upon the foreclosure sale, the bank (or whomever buys the house at foreclosure - its not always going to be the bank) will give you a sixty day notice to surrender possession of the property. If you do not leave within sixty days, then they are entitled to file a lawsuit - an Unlawful Detainer - to evict you from the property. Banks don't like litigation, and it will cost them money, so I have heard from some clients that the bank will offer money for the tenant to move, however, it is entirely voluntary. The bank has no legal obligation to pay you anything. Also, with respect to the 2-3 month delay before you get a notice, I wouldn't count on that. My understanding is that the banks are getting much better at managing their REO property, and you should probably expect that 60 day notice right after the sale. Further, what happens with a Bank of America foreclosure in one state, or even county could be completely different from what happens where you live. REO properties are handled locally, so while you may have heard that someone received the treatment you described, the asset manager handling your home may not give you the same treatment. Start with what the law says, and if you do better than that, consider it a gift. Don't count on anything better than what the law strictly says the lender must do.

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Re: Bankruptcy and foreclosure

When you say "we are free of the lease agreement now," do you mean your lease term has expired? If so, you are a holdover tenant and have relatively limited rights.

Now, as to what will happen. First, bankruptcy does not always lead to foreclosure, nor vice-versa. Many homeowners who are faced with foreclosure for shorter-term reasons are filing Chapter 13 bankruptcy to restructure their debt and save their homes. So, unless you have additional information, I think it's premature to conclude that the bankruptcy inevitably will lead to a foreclosure on the property. It very well may, but not always by any means.

I don't know the policies of any specific lenders, and I suspect that many of the major lenders break their pre- and post-foreclosure practices into various categories and groups, depending upon local market conditions, rental and resale demand, conditiion of the property, availability of personnel to supervise bank-owned properties, and perhaps most important to you, what they know about and think of the tenants.

Sometimes lenders will re-rent to the current tenants in houses they buy at foreclosure. If the buyer at foreclosure is a third party, rather than the bank, often the third party is making the purchase for income or an investment rather than to live in immediately, and if you have been good tenants and want to stay there, you should plan to contact and negotiate with any buyer at any foreclosure sale. You might want to attend the sale so you can make quick contact with the buyer.

As to the specific information you're asking about, there is a possibility that this is true in part, and may be based on someone's actual experience. I think you need to "consider the source," as they say. I think even if it is someone's actual experience, it is more likely a rare experience as I don't think many lenders, if any, are compensating tenants with expired leases, or even valid leases that were wiped out by the foreclosure, to the tune of $5,000.

Re: Bankruptcy and foreclosure

Here is a supplement to my previous answer, which would have exceeded LawGuru's 3000-character size limit if posted as a single response:

When bankruptcy and foreclosure both are present, the tenants are likely to get a little more time measured from when the landlord's woes begin. If it is a straight foreclosure, I'd figure on average four to five months from non-payment to Notice of Default, 100 to 120 days from Notice of Default to Notice of Sale, a foreclosure sale in 21 to 30 more days, some kind of notice to move out to the tenants within the first few days post-sale, with the length of time to get out dependent upon the tenant's status, with a holdover tenant not paying rent entitled to the least notice. If the tenant then fails to vacate, I'd expect an unlawful detainer suit to be filed promptly, followed by a trial (or default judgment) in three to four weeks depending on how busy the court is, and then the sheriff will show up in three to five days to carry out an eviction. The foregoing is a GUESS as to any particular case, there is a lot of variability on most of these items depending upon the lender's and the buyer's sense of urgency and how busy they are with other deals.

A bankruptcy can add months to the time between when the owner falls behind on payments and the time a tenant gets evicted. Maybe 3 to 6 more months, again depending upon the sense of urgency of the creditor and the buyer at foreclosure. Or, the bankruptcy can result in the owner keeping the property.