Q: I purchased a house at foreclosure and discovered that the tenants living inside the home have a one year lease agreement with the previous owner. The rent that they are required to pay is the fair market rent. Do I have to honor this agreement?
Yes. Under the Protecting Tenants at Foreclosure Act of 2009 (“PTFA”), a buyer of a property at foreclosure is only required to honor “bona fide” contracts. A lease or tenancy is considered “bona fide” only if:
- The mortgagor on the note that was foreclosed or child, spouse, or parent of the mortgagor under the contract is not the tenant
- The lease or tenancy was the result of an arms-length transaction and
- The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.
Thus, in your matter if the above requirements are met then you will have to honor the lease agreement that was entered into with the previous owner until it expires unless you intend to make the house your primary residence.
Q: I purchased an apartment building at foreclosure and discovered that the tenants living inside one of the units has a lease agreement with the previous owner however, the rent that they are required to pay is substantially less than the fair market rent. Do I have to honor this agreement? If not, what type of notice can I serve if any?
Under the PTFA, if the rent is substantially less than the fair market rent you are not required to honor the lease and you may serve the “tenants” a 3 day Notice to Quit. If the “tenants” don’t move out at the end of the three day period and you end up at an unlawful detainer trial, it is important that at trial you are prepared to present evidence that the tenants’ rent is substantially less than the fair market rent. You can do this by obtaining rent comparables and/or having a real estate agent or property manager who is very familiar with the area and rental market in which your house is located to testify as to the fair market rent of the house.
Q: I purchased a house at foreclosure and discovered that the tenants living inside the home have a one year lease agreement with the previous owner. The rent that the tenants are supposed to pay is market rent. I intend to move into the house as my primary residence what type of notice can I serve?
Assuming that the tenants are “bona fide” as described above, then under PTFA, if you intend to move into the house as your primary residence you are not required to honor the lease however you will be required give a 90 days’ written notice to quit. This is also true if the tenants were on a month to month agreement. However, if you decide not to make the house your primary residence, then you would be required to honor the lease until it expired.
Q: I recently purchased a house at foreclosure however the previous owner is still living in the house. What type of notice am I required to give him and how can I get him out?
You are only required to give the previous owner a 3-Day Notice to Quit. If the previous owner does not vacate the property at the end of the three day period you may start an unlawful detainer proceeding against him.
Attorney Franco Simone, of the Landlords Legal Center and has been doing evictions for 18 years. He is also an adjunct law professor at the University of San Diego. Mr. Simone’s office is open Monday- Friday from 8:00 AM to 4:00 PM. Walk-in’s welcome -no appointment necessary. Tel: 619-235-6180, website: www.landlordslegalcenter.com or email [email protected].