Q: I’ve got a lease for one year, but it looks like I’m about to get the boot. My landlord stopped by to say that he can no longer afford to pay his mortgage, and he’s received a notice of default. He advised me to get ready to move, once the bank forecloses. What are my options? –Bruce B.
A: Your question is very timely. Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed (mortgages are usually recorded right after they’re signed), a foreclosure wiped out the lease (this rule is known as "first in time, first in right"). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure. Sadly for most renters, your landlord’s advice was accurate.
These rules changed dramatically on May 20, 2009, when President Obama signed the "Protecting Tenants at Foreclosure Act of 2009." This legislation provided that leases would survive a foreclosure — meaning the tenant could stay at least until the end of the lease — and that month-to-month tenants would be entitled to 90 days’ notice before having to move out (this notice period is longer than any state’s nonforeclosure notice period, a real boon to tenants).
An exception was carved out for buyers who intend to live on the property. These buyers may terminate a lease with 90 days’ notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.
Though you don’t mention being under rent control, I should add that tenants who live in cities with rent control "just cause" eviction protection have always been protected from losing their homes at the hands of an acquiring bank or new owner. These tenants can rely on their ordinance’s list of allowable, or "just causes," for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not end the tenancy.
So here’s the bottom line: If your home is sold to a new owner at a foreclosure sale, and that owner intends to live there, your lease may be terminated with 90 days’ notice. But if the bank hangs onto the property, or if it’s bought as an investment property, your lease will survive.
Q: I’ve ended up with a deadbeat tenant, though I checked him out when I reviewed his application. I called his landlord, who said "No" when I asked if there had been any problems. That recommendation was the deciding factor in my decision to choose this applicant over a couple of others — then the trouble began. I’ve since learned that he was about to be evicted from his last place and had caused all kinds of grief. In other words, that landlord lied to me in order to get me to take this guy off his hands. It’s going to take me a lot of time and money to get this tenant evicted. Can I sue that liar? –Brian P.
A: Your experience is not unique, alas. Landlords without scruples will do just as this one did in order to save themselves the expense of an eviction (or in order to get rid of someone whose behavior, though not eviction-worthy, is highly annoying). That’s one reason why savvy landlords always call the previous landlord as well as the current one — a landlord once-removed has no motive to lie. …CONTINUED
You certainly will incur costs if your tenant stays and fights a termination notice. And it’s clear that the lying landlord played a crucial role in causing you to choose this tenant. But before you can successfully recover from him, you’ll have to find a legal theory to hang your complaint on. And this might prove difficult.
Certainly, if you and the current landlord had been in business together, you’d have a case. That’s because parties to a business contract are bound by the age-old rule of law that they treat each other fairly (sometimes known as the doctrine of fair dealing). The idea behind fair dealing is common sense — in a business transaction, each party has to disclose information that it knows, or should know, would be important to the other. But your conversation wasn’t part of any contractual relationship — you simply called him up and asked for free information.
A creative lawyer might, however, suggest a different tack. It appears that this landlord intentionally gave you a false recommendation, in hopes that you would rely on it and take his lousy tenant off his hands, which would be to his advantage and to your disadvantage. In fact, you did rely on it, he got rid of his problem tenant, and you will incur costs ("damages") as a result.
This scenario is beginning to look like a claim of fraud through misrepresentation — that is, inducing someone to do something to their detriment (and to the speaker’s advantage) by telling them something the speaker knows isn’t true. But there’s one catch: You’d have to prove that it was reasonable for you to rely on what this fellow told you.
And this brings us back to the wise landlord’s rule of thumb: Never rely solely on the current landlord’s recommendation. If a judge were to decide that your acceptance of his remarks was naive and unjustified, you’d lose your fraud claim. The simple lesson here is that in the future, you will need to screen your applicants beyond sources who may have a reason not to tell you the full story.
There’s another lesson here for landlords who are struggling to get rid of problem tenants, who get the phone call that you placed, and wonder what to do. They can learn from their colleagues in the employment world, who are frequently asked for references on employees who are less than stellar. If they give merely "rank and serial number" (employment dates and pay), they are generally under no duty to voluntarily disclose that the employee is a problem.
But once they go further, by answering other questions, they may become duty-bound to disclose important, negative information, even if the caller doesn’t specifically ask for it. Mind you, this is not the rule everywhere, but it does suggest the very safest practice: If landlords disclose only the dates of the tenant’s stay and the rent charged, but politely say "No comment" when asked other questions, they’ll probably avoid liability when the tenant moves on to become someone else’s problem resident. Savvy listeners will draw the appropriate conclusion.
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord’s Legal Guide" and "Every Tenant’s Legal Guide." She can be reached at janet@inman.com.
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