Legal Question in Real Estate Law in California

Re: lease agreement & foreclosure

This is an uncomfortable situation, and I feel sorry for you. The law is basically to the effect that unless you can prove that the lease is currently not enforceable against you because the landlord defrauded you, or for some other reason the lease is already invalid, you must treat the lease as valid, and pay the rent, until the foreclosure actually occurs.

A good possibility exists that the landlord has violated an implied term of the lease, i.e. the tenant's right of quiet enjoyment, by entering into a lease where there are valid claims from third parties that potentially threaten your right of possession. If you are inclined to withhold rent, this is a possible ground upon which to do so, although I would not necessarily advise it as long as you are actually enjoying the benefits of the lease.

Your lease is 99.5% likely to be subordinate (later in time) to the lien of the foreclosing party. In that case, the foreclosure probably wipes out the lease, but you have a viable claim against your (former) landlord for damages.

How long can you stay? There are at least two possibilities. One is that whoever buys the property at foreclosure would be delighted to have such a good tenant, and will reinstate or renew the lease, with herself as the new landlord. The other possibility is that the buyer will want you out PDQ because they have other plans, in which case you will get a three-day-notice shortly after the foreclosure, and the usual eviction process will begin. Often, that takes four to six weeks before the sheriff shows up with a moving van.

A possibility that shouldn't be overlooked is that you might want to bid on the property yourself. You know the property pretty well, and maybe you can line up the cash financing necessary to pull off a purchase.

Don't overlook the possibility that the landlord will cure his default and avoid foreclosure altogether. If he does, you want to be in a position of being a good guy and not having defaulted on your lease obligations.

Finally, I suggest that you look at the California statutes regarding what is called "rent skimming." Some landlords in this position may be guilty. See Civil Code sections 890 to 894.