Legal Question in Real Estate Law in California

Re: Forclosure protection in rental lease

Unless your lease provides for some form of verification on your part, you really have no ability to interfere with his relationship with his or her lender. There is a website called realtytrac.com which would allow you to check regularly to see if the property has gone into default once the bank records its first notice of default.

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Re: Forclosure protection in rental lease

One can ask for a written representation that can be the basis of a fraud action should he the landlord not be honest with you.

Re: Forclosure protection in rental lease

This is a good question. There is a kind of implicit assumption in landlord-tenant negotiations that the landlord, as a property owner, is financially stable, while the prospective tenant is some kind of homeless refugee whose credit history needs to be put under the microscope. Nowadays, this kind of assumption is unwarranted, and a lot of landlords are facing foreclosure and/or desperately trying to hang on to speculative investments that have declined in value or have loans that are indexing up.

First, I admit that I know of no situation where a landlord and prospective tenant have squarely faced this situation in a pre-lease negotiation, nor do I know of any formula or pattern for starting or carrying out such a negotiation. So, my answer to your good question will have to be theoretical and untested. Somewhere in the world of law, some tenant, some landlord or some lawyer may have come up with a solid way of handling this new issue in landlord-tenant relations, but I am only guessing, "off the top of my head."

First, a tenant could try to find out when the landlord acquired the property. If it were bought in 2005 or 2006, I'd be extra cautious; there are the properties most likely to have been bought during the speculative bubble and to have zero or negative equity. If the landlord has owned the property 10+ years, he or she probably has positive equity and a foreclosure is a lot less likely, but there also may be recent second loans on it. A trip to the County Recorder's office will give you a chance to look for the date of purchase and probably you can find the existing liens as well, and of course see if there is already a Notice of Default on record.

Next thought is to record a "Request for Notice of Default," so if the landlord does default, you'll be on the list to be notified.

As to the lease itself, a tenant could try to get a right to cure inserted, allowing, but not requiring, the tenant to reinstate the loan and deduct the cost of that from future rents. The statutory right to reinstate a loan after default does not extend directly to the tenant, so the provision would have to be thought through, researched and worded so the reinstatement would be made by the landlord, but using the tenant's cash. If not repayable through future rents, maybe the money used to reinstate could trigger an option by the tenants to purchase the property at an advantageous price.

The tenant could also ask to see the landlord's mortgage payment statements, or could test the waters on making rental payments directly to the lender.