Foreclosed? Yes. Grounds for eviction? Not a chance.

Los Angeles landlords love to hate the city’s tough rules governing evictions. Those rules are so strict that even if a landlord loses his house to foreclosure — his or her tenants still may have the right to stay.  City Council President Eric Garcetti will stage a press conference today in front of a foreclosed Echo Park triplex to call on Countrywide Financial to “cease and desist illegal eviction practices.”

Garcetti’s office said Countrywide foreclosed on the landlord, and then tried to illegally pressure the tenants into leaving, offering them $2,000 to go -- which might sound nice but is peanuts compared to the minimum $7,000 fee required by city law.

It’s the second time, Garcetti’s office said, that they have busted Countrywide for trying to get away with not paying the city’s full relocation fee. In July, tenants in South Los Angeles were offered $1,000 to move.

Garcetti’s office also said anyone who thinks they are being illegally pushed out should call the city’s housing department at 1-888-557-RENT.

-- Jessica Garrison

Your thoughts? Comments?

Photo Credit: L.A. Times

Comments

[OverIt]

Ah Countrywide....

Mozillo is out partying like it's 1973 somewhere right now...drinking a tequila sunrise and lighting cigars with hundred dollar bills. In the meantime, the worlds financial system falls apart like a overheated glacier.

[Laker]

I have been tracking one house that i wanted to buy back in December 2007 when it was in a short sale. The bank foreclosed in May 2008. Today it is almost November, that is 5 months that the previous owner is "living" in a property that officially belongs to the bank and the mortgage was null at the moment the bank took over at trustee sale. So, it means 5 months of mortgage/rent free. Add to that about 6-10 months going back to 3 months before January when a NOD was placed. That means these people are living there for FREE for the last YEAR !!!!!!!!
I WANT THAT TOO.
Although the lawn looks brown, the people still live there and there are no sign of moving out. They have some small kids/infants...but still, does that entitle them to live rent free? What kind of stupid bank or stupid laws allow them to continue that....
Again the occupant is not a renter from a landlord/investor. He was the home owner. Interesting though is that the property/title and loan were only on the husband's name stating that he is a single man, so there might be some fraud there, and now the wife might claim that she is/was renting the place and therefore deserves to stay there....forever....for free???

[sanity clause]

I fail to see how this is an example of strict limitations on evictions. If the previous owner of the property made a binding commitment to lease the property, the owner assuming the property through foreclosure doesn't take free and clear of that obligation, and there's no reason they should.

[Vortigern]

I think you should dig a little deeper and ask a real-property lawyer about this. The City of Los Angeles likely does not have enough legislative authority to override state law and force a bank to allow tenants to remain (or pay them a fat relocation fee) after foreclosing on a house. The recorded deed of trust gives the mortgage holder a "prior and superior" right to the property. Unless the tenants got a lease recorded before the deed of trust, or got the mortgage holder to cosign the lease afterwards, foreclosure converts the tenants from leaseholders under the (ex-)mortgagee to "tenants at sufferance" (at least after a month) under the mortgagor.

[Cal]

sanity clause,

A lease is nulled by the trustee sale. California law now allows 60 days for the renter to find a new place. Anything like deposits and the like are a civil matter between the renter and the previous owner.

From Pete's post, regarding the $2,000. This is a standard practice to get people out of the homes and avoid the length and cost of the eviction process and is known as Cash For Keys (CFK). Servicers aren't very flexible and just handle things in a standardized way. You will notice in the BofA article today regarding loan mods you also see the $2,000 number appear. For the same reason, they standarized the CFK price for foreclosed homeowners. BofA/Countrywide just will have to come up with some location specific policies to deal with these local laws.

I bet BofA gets out of the servicing business eventually, it does nothing but make them look bad. Although Wells Fargo is a huge servicer and isnt in the news nearly as much.

[mike]

renters simply have too many rights in this state. imagine a state saying you don't need to adehere to a contract and that the owner will need to jump through costly hoops to evict a non-payer. seriously...all landlords that are reading. RAISE THE RENTS TO THE MAXIMUM AMOUNT ALLOWED BY LAW AT THE NEXT AVILABLE OPPORTUNITY. they have no where else to go anyway.

[buz]

It is becoming quite clear to me that being responsible, honest and financially prudent is for suckers. Despite studying like a madman in school, working crazy hours and saving every spare nickel my quality of life is not that much different than someone who dropped out of high school, popped out a few kids and partied all through their twenties. The idiots never have to face the music and pay the consequences for their lameness. In this case it is quite the opposite. Screw up and get rewarded with rent free housing for a year. It is a bizarro world we are living in.

[Drew]

Laker -- I think you missed the main gist here.

The eviction laws being described here are those related to people renting properties that have been foreclosed.

I agree with you that it's wrong for people to continue to live in their houses once they themselves have been foreclosed upon.

But if someone is a renter, all applicable laws must be followed with regard to evictions.

The laws may favor renters over property owners -- that's open to vigorous debate -- but until they are changed, they are the law and should be enforced.

[Maggie Knowles]

I've been listening to the House Committee on Oversight and Gov't Reform, they've had several panels from various corporate interests, like people from credit derivatives, credit rating agencies, economists, regulators (Greenspan finally said he made a mistake), etc.

It's becoming quite clear that yes, people took out loans they couldn't afford. But it wouldn't have happened if we had kept the long standing regulations we've had since the Last Great Collapse, 1932, up until the banking industry started to slowly deregulate since the 1980s.

From a post from Nobel prize winner on economics, Paul Krugman at the NY Times:
http://tinyurl.com/25pgzd
~~~~~~~~~~~~~~~~~~~~~~
"...there was plenty of coordination — a coordinated effort to destroy effective regulation:

Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

The lack of oversight, in short, was no oversight: it was part of the plan."
~~~~~~~~~~~~~~~~~~~~~~
click the link above to see the picture of the banking industry reps taking a chainsaw (and tree shears) to a stack of banking regulations. Those in the picture are James Gilleran, Director of the Office of Thrift, Jim McLaughlin of the American Bankers Association, Harry Doherty of Community Bankers, John Reich Chairman of the FDIC, and Ken Guenther of Independent Community Bankers of America.

Determined to run our economy into the ground (unconsciously of course, they didn't consider the consequences to society, only that THEY stood to make a lot of money.) And why not? They also made sure they could merge and grow to be too big to fail so that the American Taxpayer would make up their losses if that ever came to pass.

So do I feel sorry for poor old Countrywide? Should poor old Countrywide have to follow the law when it comes to foreclosures and evictions? Yes. Even it costs them money to do so. Besides, whatever money they're using now is taxpayer money, right? Part of the $400,000 that BofA is using from the FED? So why should Countrywide care?

[Jeffreez]

What am I missing?

Why would the bank want to evict paying tenants? Why not collect the rent while trying to sell an income property with proven income? If the tenants stop paying rent then evict. When you sell income producing property, you want it fully occupied not empty.

[PeonInChief]

First, only tenants in units subject to rent control and just cause eviction are protected from eviction after foreclosure. But the banks seem to want to empty the buildings (does not make sense, but then neither do CDSs) and have engaged in all sorts of illegal activities to get tenants out. I just sent a group of tenants off to talk to a lawyer last night. It's a different bank--same kind of bad behavior.

And that's why the Cook County Sheriff stopped evicting people--the banks/mortgage servicers hadn't given the tenants the legally-required notice.

[xtine]

I am confused.

A friend of mine bought a duplex in Silver Lake. The only reason he can evict the tenant is because HE (the new owner) intends to occupy the unit. My friends lawyer said, if he was not going to occupy it, he could raise the rent when the lease expired, but he could not force the guy to leave.

Another friend lived in a Los Feliz building that sold. HIS new landlord could only evict him because he wanted his (the landlord's) mother to live in that unit. He forked over 15K and my friend left.

So what are you all talking about when you say the tenant has to leave? Everyone I know on either side of the issue has come across the exact opposite experience.

[Cal]

Laker,

What street is the home you are talking about on? I might know a little something about it.

Jeff,

If you believe that prices are going down (and how can you not in the So. Cal region) and your job is to maximize the Net Present Value for the investor (as is the job of the loan servicer). You want to get the home on market and sold ASAP because the price you would get NOW is much greater than what you would get later.

Unless the home is cash flow positive at a significant cap rate (including maintenance, opportunity cost, etc) at what the trustee would net from a sale and factoring in capital depreciation (the investor wont know when they could recoup their money), it makes zero sense for them to even think about renting back (something they really dont want to do anyways). The other factors involved is that once it is sold to the trustee, the entity that owns the home could be a securitization. The top level (AAA) tranche would want its money back now because it is much better protected from loss where the lower rated tranches would want to rent it out and reduce their loss.

[Drew]

"Why would the bank want to evict paying tenants?"

If it's a single family residence, it is assumed that the buyer will want to occupy it as a primary residence. Tenants are just problems at that point for both the buyer and the seller.

The problems noted above by xtine arise when a new owner wishes to occupy one or more units in a multi-family dwelling. It wasn't the bank wishing to evict, it was the new owner.

[Laker]

Cal, which street are you referring to? (in woodland hills)

[Public Enemy Number One]

Lots of misinformation here, all around. Yes ,the LA Times would do better talking to an attorney practicing in the field, rather than kow-towing to the city's press release. But, if you think any attorney actually practicing in the field will actually talk to the press these days, I've got a bridge to sell you. The press has been doing nothing but hatchet jobs on "banks" throughout the duration of the crisis; no reputable attorney in the field (including me - and I will remain anonymous) wants anything to do with it. We're all too busy with the volume of work we have these days to bother educating a reporter who, frankly, has most likely already bought the narrative of "banks bad, consumer good".

First off, let me be clear that I do not represent CW/BOA, so I have no specific facts about this property or about CW/BOA's rent control eviction practices in general.

The Los Angeles Rent Stabilization Ordinance - or LARSO - contains two main components: (1) provisions controlling rental amounts, and (2) a "for cause" eviction provision, limiting evictions to only a handful of enumerated reasons (such as non-payment of rent). I will ignore the former provisions, and focus only on the latter.

The lease is, in most cases, terminated by the foreclosure sale. We hear all the time from tenants who claim their lease survived the foreclosure sale, because their lease was entered into prior to the foreclosure sale. Wrong under CA law, unless you happened to have recorded your lease prior to the recordation of the Deed of Trust that was foreclosed out. And, trust me, that doesn't happen.

Despite the lease being terminated as a matter of law, foreclosing lenders are still subject to the "for cause" eviction provisions of LARSO (and any other city's rent control ordinance) under CA state law - thanks to a decision known as Gross v. Superior Court. I personally would love to see one of our clients grow the cajones to set up a challenge to the Gross opinion (which I believe was wrongly decided), but haven't yet found any client willing to foot the extensive legal and PR cost to do so.

That leaves foreclosing lenders in this nebulous gray area - they aren't technically "landlords" under CA law (see a decision called California Livestock v. Sutfin), but they still have to comply with the eviction controls of LARSO if they want to evict (see Gross v. Superior Court). Square peg, meet round hole.

The biggest problem our clients end up with on rent controlled properties is lack of tenant cooperation. Many times, our clients have no idea who is in the property. They have no idea what the terms of that occupant's lease was with the now-foreclosed former owner. They have no idea what the condition of the property is, although both cities and tenants are all too willing to hold our clients responsible for the slumlord conditions they inherited and don't know about (because the tenant hasn't cooperated).

And, to assume the tenants are all angels and innocent victims is just plain naive. Saints and sinners exist on both sides. Our clients end up with tenants claiming they paid $100/month in rent, no written lease, and paid all in cash. They end up with tenants claiming they pre-paid rent for 5 years with a promissory note. And, the city's not immune to playing games either - the former owners are given pass after pass after pass for code violations at the property, but as soon as "money bags" owns it via foreclosure, they're hammering our clients within days, threatening $1000/day fines or criminal prosecution. Hey, gotta make up for those sagging property tax revenues somehow, right?

Here, the good city councilman's "outrage" about CW offering Cash for Keys - or, CFK - is really nothing but scoring cheap political points on low lyinig fruit - since everyone these days has bought the "banks bad, consumer good" meme.

The outrage about CW trying to "rip off" the tenants is faked, and the LA Times bought it hook, line, and sinker. Yes, LARSO contains larger relocation amounts.
(And, FYI, it isn't $7000. The city recently upped it to a minimum of $9300, but in reality it actually runs $17,800 - yes, nearly $18K.) But, those larger amounts are only triggered under LARSO if certain conditions are met (for example, if a unit is condemned, or if you are evicting for owner occupancy or under the Ellis Act, or if repairs will require the tenant to vacate the unit for longer than 30 days, etc.). There's no evidence here, and not even so much as a mention, that any of those triggers exist here.

Of course, tenants - and apparently the good city councilman here - would like to think the mere existence of a foreclosure is sufficient cause to trigger the duty for our clients to pay these larger amounts. But, that's simply not the case - and, it would likely be an unconstitutional taking if it was.

And, personally, I think the city's relocation assistance provisions - particularly when they hike the relo amount to nearly $18K per unit - are marginally constitutional at best in their current form. (Again, however, I haven't yet found a client willing to take the LAHD on regarding this point, although I keep trying.)

All that said, I can say that our industry has a really nasty habit of using "one size fits all" approaches. I'm guessing CW was offering $2K because that's its normal CFK offer for all properties in CA. While I can rail on and on all I like about how injust I feel rent control, and the cities, and the LAHD in particular, is to our clients - the fact remains that our clients have to adjust to the reality that is out there today. And, in places like LA, it means they need to adjust their policies and procedures to account for the fact that the mere offering of CFK is likely to get them into a bind. Those of us who have worked in this field for any reasonable length of time could have told CW that a long time ago (assuming, of course, that CW would actually have listened to its lawyers).

I close by reiterating that there are saints and sinners on all sides. I feel the pain of the legitimate tenants, whose situation is directly and solely attributable to a former owner who had taken advantage of them. But, the story being painted in our media and by our politicians is not focusing on these former owners - it is instead, almost uniformly, villianizing the "banks". I truly believe that villianizing "banks" is not without consequences, and that the narrative sold to the masses about this crisis is actually helping to feed it (as banks, attacked on all sides, batten down the hatches and squeeze the economy even more).

[Inland Empire]

Although the lawn looks brown, the people still live there and there are no sign of moving out. They have some small kids/infants...but still, does that entitle them to live rent free? What kind of stupid bank or stupid laws allow them to continue that....
Again the occupant is not a renter from a landlord/investor. He was the home owner.

The kind of stupid bank that gives its CEO's big bucks and parties and asks for a bailout from the Feds. (Hint - ALL OF THEM) Meanwhile the rest of us get screwed into paying it off for them.

[Inland Empire]

What am I missing?

Why would the bank want to evict paying tenants? Why not collect the rent while trying to sell an income property with proven income? If the tenants stop paying rent then evict. When you sell income producing property, you want it fully occupied not empty.

For starters, the bank is not collecting any rent from tenants; the landlord was. Since the banks were poorly equipped to handle the amount of foreclosures, I don't think they are set up to become landlords either. As for buying income property, you can read the posts of others and I will attest that, no, you don't always want the current tenants when you buy property.

[Neal Weichel]

I am a Real Estate agent that represents CW foreclosures. I can attest to some of the comments here-specifically the overwhelming ammount of homeowners that stopped making their mortgage, rented out the property and kept that income until the property foreclosed-and sometimes after if the tenant didn't know it. As an agent for CW I can tell you that their policies of educating their agents about tenants rights, properly handling cash for keys and just generally making sure we conduct ourselves properly and professionally is better than any other Asset Management company I know handling foreclosed properties. I make no apologies for their past actions, but I suspect this obvious poitical grandstanding is the result of an agent requesting CFK, not informing CW fully about the situation, and attempting to get the tenant out so that they can list and sell the property. I also would bet that CW will remove them from the "approved agent" pool that they use if that is the case.

[Crash and Burn]

It's confusing to me why the Times says LA's rent control is so strict. If its a single family home, its not covered by LA rent control, and even if it were, a new buyer could move her family in and the tenant would have to move out.

What we are talking about are banks coming in and wanting to vacate propeties because they see it as an asset, and as stupid as it is to give up that monthly income, they are bankers, not rocket scientists or even business owners and just see it like a pile of $20 bills. It seems very sensible to me for the city to enforce the law and prevent these properties from sitting vacant when housing is already tight in LA.

This is a non-issue except to point out that banks don't care about following the law. We should write our laws so that if they don't follow them, they go to jail.

[PeonInChief]

I'm sorry, but I've just heard too many stories about Countrywide and Deutsche Bank not to believe that (a) they know the law in rent-controlled communities and (b) they've been told to harass and bully tenants out of their rent-controlled apartments. When the State Legislature passed SB 1137, it specifically stated that foreclosing lenders were bound by local rent control and just cause eviction laws.

In addition, many lenders have been pulling stunts like claiming to have served a 3-days' notice to pay rent or quit and then filing an unlawful detainer against the former landlord, all without having served any notices at all. I'd like to see some prosecutions for perjury and complaints filed against their lawyers with the State Bar. That might encourage better behavior.

[Rosomane]

I am a tenant in a duplex in Granada Hills under LARSO. My landlord bought for under $200K a dozen years ago and refinanced for nearly $500K last year. He tried to raise the rent by 33%, then he got a lawyer to write an eviction notice (Ellis Act) in order to sell the house (no relocation assistance though). He nearly rented rooms in the neighboring unit that he occupied but at the 11th hour either realized or his lawyer told him these new tenants would have all the rights under RSO as I did so he refused to let a disabled woman and her child move in leaving her homeless as she had already given notice to her previous landlord, etc. Next he put the property up for sale; after several months the property went into foreclosure. The auction date was supposed to be in September but an investor who was considering buying the property told me he got a 30 day extension from the lender. Meanwhile the owner/landlord has moved out (he occupied the other duplex). He didn't inform me of any of this although he lived next door, I just got letters, saw the sign go up, watched as a truck took away all his furniture, etc. So far, the property apparently still belongs this joker as I keep checking the tax assessor website for any change in ownership. I have lived here for 12 years, paid my rent on time, taken good care of my house as if it were my own - this landlord got really ugly at the end, vandalizing my car, throwing garbage into my yard.... Because he didn't raise the rent regularly, it is very low by today's market and wouldn't contribute much to what has to now be a $3K mortgage payment - who would want to buy this property under that circumstance? The attorney who commented previously didn't mention that if a disabled person is a tenant the relocation is $18,600 plus you can exercise the right to a year rather than four months to relocate. Personally, I would NEVER buy a property that fell under RSO but I'm grateful I live in one because of landlords like mine. FWIW he is in law enforcement as well.

[Sam]

Any time you manipulate the free market, there is a victim.
America was founded on greatness. We are slowly driving out the greatness by changing the principals for which we stand. We are no longer a group of people striving for greatness and leaving everything open to competition. We no longer allow the free market to control and force us towards greatness. Rather we have gotten soft and fat and weak and slow.
Rent control is a symptom of a socialistic mentality. How many people scrape for years so that they can make extra money through an investment property, just to have their dreams and finances shattered by this city’s rent control laws? Too many! It drives them into bankruptcy foreclosure etc. Why should a tenant who lives in a unit for 30 days be able to hold that place hostage and demand $18,500.00? Is this the greatness of America or is it some sick version of the city council acting as Robin Hood?
If Obama is the catalyst for change lets keep in mind the direction we have come from and the direction we are going. We need a 180 degree turn right now.
Any time you manipulate the free market, there is a victim. The RSO is contributing to foreclosure market. If you cannot afford market rate rent, go live in Arizona.