New Owners Liable for Refunding Deposit

Friday, April 18, 2008
J.N. Sbranti
The Modesto Bee

Here's a success story that didn't start that way.

This summer, Linda Hayes was forced out of the Modesto house she had been renting for two years. The Semple Street home was foreclosed on by lenders because the owner defaulted on its mortgage.

Hayes, 58, said she had paid the owner $1,000 in rent every month through July. To her surprise in late July, Hayes discovered a notice on her door ordering her to move.

She called her landlord, who she thought still owned the house. That's when she learned of the foreclosure, which actually occurred in early June.

Hayes, who works long hours caring for people with terminal illnesses, said her landlord promised to return her $1,000 security deposit.

Trusting the money was on its way and figuring she didn't have any other options, Hayes moved in early August.

The cross-town move created a financial hardship for her, especially since the promised deposit refund never came.

"I'm still waiting," Hayes told The Bee two weeks ago. She said she repeatedly had left messages for her former landlord, but she wasn't getting any response.

The Bee didn't get any response from the landlord, either, but California law offers protection to tenants like Hayes.

Civil Code Section 1950.5 states that the property's new owners "shall be jointly and severally liable with the landlord for repayment of the security" deposit.

That means that if the previous owner/landlord doesn't follow the law and return the security deposit, then the new owners have to pay the tenant what is owed.

In Hayes' case, that was $1,000.

Last week, The Bee contacted the new owners, Select Portfolio Servicing Inc. of Salt Lake City, on Hayes' behalf. After hearing the facts, company Executive Vice President Craig Bullock promised to send Hayes a $1,000 check via overnight delivery.

"It's the right thing to do," he said.

Thursday, Hayes said she returned from work to discover "a beautiful envelope sitting on my doorstep" with the check inside.

Not all security deposit disputes end as well.

Chad Costa, a Modesto real estate agent who represents more than 15 lenders in foreclosure proceedings, said he has never heard of a law requiring new owners to pay back tenants the security deposits that previous landlords kept.

The California Apartment Association, which has 50,000 members, including thousands of rental home owners, has posted a legal summary of the state's security deposit law on its Web site. It was written by Debra Carlton, the group's senior vice president.

Carlton told The Bee last week that the law "is straight up" in making property owners legally liable for refunding rental security deposits to tenants, even in foreclosure cases.

"I like to say that California is a consumer state," she said. "We have many more laws in place to protect the tenants than some other states do."

Carlton said lenders who foreclose on rental properties would be wise to hire professional property managers or other representatives who understand the procedures necessary to make sure the rights of tenants are protected.


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