Many times during the last five years, we have heard sad stories from tenants who rented a property that was actually in foreclosure. They had paid a deposit (and often a pet deposit) and rent to the owner, only to discover after moving in that the house had been or was going into foreclosure. Some tenants dug their heels in and refused to allow entry to agents trying to sell the home as a short sale. All feared loss of their deposits and the expense of having to move once again.
California SB 1191 requires every landlord who offers for rent a single-family dwelling, or a multifamily dwelling not exceeding 4 units, amd who has received a Notice of Default that has not been rescinded with respect to a mortgage or deed of trust secured by that porperty to disclose the Notice of Default in writing to any prospective tenant prior to executing a lease agreement for the property.
In other words, a landlord MUST disclose the fact that a Notice of Default has been filed to prospective tenants BEFORE SIGNING THE LEASE. Failure to do so could result in the tenant voiding the lease and recovering one month’s rent or TWICE THE AMOUNT OF ACTUAL DAMAGES from the offending landlord. Tenant is also entitled to collect any pre-paid rent.
San Diego property owners who have received Notices of Default ARE allowed to rent their property in foreclosure but once the NOD is filed, they must give the prospective tenant written notice–or be prepared to pay a hefty penalty. And though it is not required, it would be an excellent idea to have that notice signed and acknowledged by the prospective tenant.
Property managers are exempt from damages if the property owner failed to notify them of the Notice of Default, per CC §2924.85.
Hat Tip to Lending Law