Tenants Together Urges Banks to Continue Renting to Tenants after Foreclosure

Tenants Together has released a new proposal directed to lenders who acquire ownership of tenant occupied properties through foreclosure.  The proposal urges lenders to continue renting to tenants after foreclosure and to act as responsible landlords.


Renters in properties going through foreclosure are innocent and hidden victims of a foreclosure crisis they did nothing to create. Renters face many problems in these properties, everything from utility shut-offs to eviction and loss of security deposits. Banks typically evict all residents after foreclosure. Thousands of California renters are being driven from their homes so that properties can sit vacant.

The scope of the problem is staggering: Tenants Together conservatively estimates that at least one third of residential units in foreclosure in California are rentals. In 2008 alone, we estimate that more than 225,000 renters in California lived in properties that went through foreclosure.

In addition to the devastating human costs, these evictions also make no financial sense. Banks are turning away huge amounts of money in potential rental income so that their properties can sit vacant. A recent Bloomberg News story estimated that banks lost over $1 billion in potential rental income in California in 2008 by evicting rather than renting to tenants after foreclosure. Meanwhile, banks are incurring costs for lawyers to litigate eviction cases, and for agents to negotiate "cash for keys" deals, as part of a misguided effort to drive out innocent tenants. Once the tenants are evicted, many of these properties end up sitting vacant for months or years. These vacant properties are prime targets for vandalism, further contributing to plunging property values, and creating legal liability for banks as the owners of blighted vacant property.

Legislative efforts are underway to force banks to continue renting to California tenants after foreclosure and to act as responsible property owners. Forward-thinking banks should voluntarily adopt policies with respect to their treatment of tenants that are both humane and economically sound. Proposed policies are set forth below.

Policies for Banks

Tenants Together urges lenders to adopt the following minimum policies with respect to California tenants when they take ownership of occupied rental units:


Notify Tenants of New Ownership and Management: Comply with the notification requirements of Section 1962 of the California Civil Code, including disclosure to tenants of contact information for the property manager.


Maintain Utility Services and Habitability: Continue to provide utility services that were the responsibility of the pre-foreclosure landlord, and maintain units in habitable condition per California law.


Do Not Evict Except for Cause: Refrain from evicting tenants after foreclosure unless the tenant has violated terms of tenancy.


Monitor Agents for Compliance with Tenant Protections - Monitor contractors/agents for compliance with this policy and with state and local laws protecting tenants, and terminate contractors who fail to comply.


Return Security Deposits: Comply with the requirements of California Civil Code section 1950.5. Return security deposits after tenants vacate, unless there are grounds for deductions.

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