Legal Question in Real Estate Law in California

"Predatory lending" means the lender gave you money you asked for and promised to repay, to buy a property you thought would appreciate forever and make you a speculative fortune. Now that the speculative 'bubble' has collapsed, and your property is back down to its historically and statistically 'normal' price level, you can expect any temporary moratorium to soon disappear along with your 'paper profits' which has gone to 'money heaven'. All those defaulted underwater mortgages will ultimately be foreclosed upon and the property returned into the flow of commerce, after everybody involve takes their lumps and losses, both individuals and banks. You can try to 'work out a deal', but you'd better get it done before the foreclosures start in earnest. There won't be any deals then.

You are entitled to rent at whatever rate you can get a tenant to rent the property for, as long as you own the house. If you let it go into foreclosure, you will be entitled to rent until the gavel falls on the sale. Then the bank will be entitled to the rent.

It depends, and it does not depend on a judicial sale as stated by Mr. McCormick.

The common security instrument in California is the deed of trust. Many of these deeds of trust contain an assignment of rents and profits. Absent a specifc agreement between the trustor and the beneficiary, the beneficiary (lender) is not entitled to possesssion of the seucred property or to the collection of its rents or profits. (Snyder v. Western Loan & Building Co. (1934) 1 Cal.2d 697, 701-702.)

The assignment of rents and proifts to the beneficiary may be included in the actual deed of trust, or it may be in a separate document. (Civ. Code, sect. 2938 subd. (b).) Contracts entered into after January 1, 1997 are governed by Civil Code section 2938.

When the borrower defaults, there are four different methods by which the lender may enforce the assignment of rents:

1. Appointment of a receiver. This is a court proceeding appointing someone to receive the rents, for the benefit of the lender.

2. Obtaining possession of the rents, issues or profits.

3. Delivery of a writen demand to turn over rents (the form is called "Demand to Pay Rent to Party Other Than Landlord", and is set forth in Civil Code section 2938 subd. k.) to one or more of your tenants.

or

4. Delivery of a written demand for rents, issues or profits to the borrower-assignor, with a copy to all other assignees of record.

On or after the lender takes one or more of the enforcement steps described above, the lender is entiteld to collect and receive all rents, issues and profits that have accrued but remain unpaid and collected by the assignor on that date, and all rents, issues, and profits that accrue on or after that date.

If any of these methods has happened, you are no longer allowed to collect the rent.

Mr. Roach is right, but the lender/beneficiary probably has not invoked its right to receive the rents yet, and many never do, prior to foreclosure. In that event, what Mr. McCormick has said continues to be sound advice. I also agree with Mr. Nelson's philosophical and theoretical observations on the marketplace and how it operates.