QUESTION
Do we have the legal right in California to evict rentals from a property we bought on auction ?
Asked on Jun 19th, 2016 on Real Estate - California
More details to this question:
We won the bidding in an internet auction (xome.com) to purchase a townhouse in Yorba Linda for $636,000 + $25,000 fee. The home is probably worth $800,000. It was a Deutsche Bank repo. We then found out that the renters had signed a lease to rent the property at way below market value ($2400 a month - worth $3600 or more) until December 2017! Are we obliged to honor that lease? We want to move in to the home ourselves (wife and I). The renters were not told the property was foreclosed or we be at auction and a management company had them sign the lease a few months ago, after telling them earlier they would have to move out. Sounds scummy. We gave xome.com $2,500 to register in case we won. Do we have the legal right to back out without being responsible for the $636,000 plus $25,000?? Or do we have to buy the home or get sued by zome.com? Do we have to pay them $2,500?? If we do go ahead, can we evict the tenants? Thanks
1 ANSWER
That is a really complicated question and will depend on a lot of facts.
If the Deutsche BanK loan was recorded in the county real estate records before the lease was signed, and if the lender went through the full foreclosure process, then the foreclosure cancelled the lease.
If the lender took back a deed-in-lieu of foreclosure, then the lease survives.
Even if there was a complete foreclosure sale, if the bank or anyone else has accepted the rent payments after the foreclosure sale, the occupants may argue that acceptance of the payments renewed or ratified the lease. It's not a great argument, but it could take a year or more of litigation to get a final determination.
I suggest you negotiate a deal with them. They'll need first month's rent and the security deposit for a new place. You could start by offering that. Then add reimbursement of the cost of a moving company packing and moving their stuff. Getting them to move out early is worth as much as $21,600 to you (18 months x $1200.00). So you can afford to negotiate.
An eviction action will start at costing you around $5000.00 and could easily get to $20,000.00 in attorney fees on that renewal and ratification issue. The lease probably has an attorney fees clause. If you lose, you pay both sides attorney fees. If you win, you might get a judgement to recover your attorney fees, but you might have trouble collecting it. They're renters.
If you appreciate this free advice, please remember to refer me to any friends or acquaintances who need a lawyer. Referrals are still our best source of new business.
Do you have a revocable living trust to protect your heirs against probate? Probate takes forever, is expensive, and is annoying. Do your family a favor. Set up a trust, and put all your property, especially any real property, into the trust. Since it is revocable, you can change it, add to it, take property out of it, or even cancel it completely, at any time. We set up such trusts, provide a pour-over will as a back-up for any property that does not make it into the trust, provide you with blank durable powers of attorney for health care and financial decisions, in case you become incapable of making such decisions while still alive, and convey one piece of real property to the trust, usually the family home, for $1500.00. If you would like to hire me to do this, let me know, and I'll send you a list of the information I need.
Dana Sack
Answered on Jun 21st, 2016 at 10:57 AM