Legal Question in Real Estate Law in California

Re: keeping rental income without paying mortgage

No, but keep a record, copies of your checks, and get receipts for each rental payment, so that when the property is foreclosed, you can show the new owner (probably the bank) that you continued to pay rent and shouldn't be evicted for nonpayment of rent.

Re: keeping rental income without paying mortgage

The reason it is not illegal is that until the bank forecloses on the mortgage, the property is still legally owned by the landlord and your contract with him is still binding [unless it is a long term lease that has the rental period going beyond the the foreclosure date, but no one knows at ths point if the foreclosure wil occur then or not].

Re: keeping rental income without paying mortgage

I disagree with the previous answers, at least to a degree; the practice is sometimes illegal and even occasionally is criminal.

There is a concept in California law called "rent skimming." It is illegal, but the definitions must be understood. One form of rent skimming occurs when someone who isn't the landlord or the landlord's authorized agent or manager collects rent from a property. This is always illegal. Another form, defined in the Civil Code at section 890(a)(1), consists of "....using revenue received from the rental of a parcel of residential real property at any time during the first year period after acquiring the property without first applying the revenue or an equivalent amount to the payments due on all mortgages and deeds of trust encumbering that property."

So, if the landlord failed any time during the first year of ownership to pay at least as much on the mortgages (and deeds of trust) as he/she/it received in rent, that's rent skimming and it's illegal.

The Civil Code, at section 891 to 894, goes on to provide civil remedies for an injured tenant and (in some cases) criminal penalties for skimmers.