December 18, 2008
JustQuotes: Just Because It's Foreclosed Upon Is Not Just Cause
"Tenants in rent-controlled buildings in San Francisco are protected by the need for a 'just cause' for eviction," said Darlene Wolf, executive director of the rent board. "And foreclosure is not just cause."
First Published: December 18, 2008 7:30 AM
Comments from "Plugged In" Readers
Does someone know the last word (for the moment of course) on this for non rent controlled buildings? Is there some sort of "just cause for eviction" required?
Posted by: sometech at December 18, 2008 8:38 AM
sometech - this is from the Rent Board website:
Units Exempt from the Rent Ordinance
"With certain exceptions, rents for residential rental units in buildings that were constructed before June 13, 1979 are covered by the Rent Ordinance. Residential units in buildings for which a certificate of occupancy was first issued after June 13, 1979 are exempt from the San Francisco Rent Ordinance. Commercial units are also exempt from the Ordinance."
My understanding is that if a building is not subject to the rent ordinance then it is not only free from rent pricing controls but also the just cause eviction restrictions.
Posted by: FSBO at December 18, 2008 9:56 AM
It depends. A good start is a brief review of the just cause info found on the following page:
The key seems to be this part:
"The Rent Ordinance does not regulate evictions from rental units that are totally exempt from the Ordinance - such evictions are governed entirely by state law. Exempt units include those in buildings constructed after June 13, 1979 plus a very limited number of units exempted by the Ordinance and/or Regulations or through a Rent Board petition process. (See Ordinance Section 37.2(r) and Rules and Regulations Section 1.17 for a complete list of exemptions.)
Some tenancies that are exempt from the rent increase limitations of the Ordinance are still subject to the eviction provisions of the Ordinance."
Posted by: Rillion at December 18, 2008 9:57 AM
The deal is this:
Any building constructed after 1979 is exempt from BOTH the rent controls AND eviction controls.
Any building constructed before then is subject to eviction controls. Condos and SFRs are not subject to rent controls, but ARE subject to eviction controls if built in 1979 or before.
The reason is that the state exempted condos and SFRs from rent controls. But this didn't affect eviction controls. So those are still in effect, for units covered by those laws. The eviction controls specifically exempted units built after 1979, so only those before that time are covered. But they are covered in spite of the fact that the rent controls no longer apply.
There are other exemptions to the rent control laws, but very few buildings qualify.
Posted by: tipster at December 18, 2008 10:46 AM
tipster - good summary. I think the only exception to condos and SFRs not being under rent controls is if the tenancy began prior to Jan 1 1996 (and of course if the property was built prior to 1979). These tenants retain rent pricing control.
What type of minds concocted this stuff?
Posted by: FSBO at December 18, 2008 11:27 AM
"What type of minds concocted this stuff"
Normal people. There were/are landlords (Sangiacamo/Lembi) who did/do make a habit of abusing their positions as landlords. Stealing deposit money, turning off heat, not fixing hazards, throwing people out who complain, jacking up rents in arbitrary and punitive ways. These types got tenants and ordinary people angry.
Let's face it, landlords are not in general loved by anyone, even their own mothers. It didn't take too many abuses, and there were & are more than a few, to embolden the board of supes to create the Rent Board and for Mayor Feinstein to sign it. But its not all that bad. Rent control has pushed developers to build condos over apartment buildings, which has in my opinion contributed to price appreciation of current apartment building stock as few new units are ever added. And condo conversion resitrictions, no matter how much they suck, have also contributed to inflated values. Higher values have hedged those markets as speculators couldn't afford the properties as easily as something outside the city, so there are less properties underwater here.
Seriously, if your cap rate is %2, even the loosest of lenders needed serious coin up front.
Posted by: Eoral at December 18, 2008 12:20 PM
The laws make sense if you understand the history.
In 1978, inflation was rampant. Home prices were rising and people had to sell their homes to pay the property taxes. The schools were required to bus in kids, and the rich people fled to private schools. There was no desire to keep paying ever increasing property taxes just so the poor kids could enjoy what once was your neighborhood school.
So people proposed prop 13 to keep property taxes low so they could afford to send their kids to private schools and to keep seniors in their homes. It didn't help just little old ladies on fixed incomes in danger of losing their homes, it helped landlords too. So the landlords wrote their tenants letters telling them that prop 13 would keep rents low and they should vote for it too. The argument for prop 13 at the time was that it "preserved neighborhood stability".
Prop 13 passed, but with high inflation wages kept rising so the promised lower rents never materialized. Tenants were furious that the landlords got the windfall they had been promised. So tenants in many cities in which they had the majority passed rent control laws. They used as the justification that rent control would "preserve neighborhood stability". Those laws were typically effective in 1979 and were city, not state, laws. Landlords would have gotten around rent control by tossing tenants out, so eviction controls were part of the rent control ordinances passed in 1979.
The objection to rent control is that no new apartments would be built, so rent control laws were written to exempt new housing to avoid that argument and get the laws passed. So after 1979, everything new is exempt.
By 1996, the rents in rent control jurisdictions had gotten much lower than market based rents and it was seriously hurting property values in which the best use of the property was as a rental.
In 1996, homeowners and the real estate lobby got the state legislature to void rent control for single units: condos and SFRs. Fearful of stories of little old ladies being tossed out on the street due to high rents, the law only applied to new tenancies, and therefore, it also had to keep in place the eviction controls, or people would just evict the old tenants, so eviction controls were not touched by the state law at all, to protect the older tenants who would still be covered by rent control. Because it was a state law, it trumped the city laws.
So you have the laws that are in place today, with 1979 and 1996 being pivot points. So you have the odd situation of a condo or SFH built before 1979 but rented after 1996 being subject to eviction controls but not rent control.
Lest you think that, for units with no rent controls, but having eviction controls, you can just jack the rent up to $1Mil and toss the tenant out due to the high rent, thereby making the eviction controls worthless, people will call any rent above market a "constructive eviction", for which you can be sued for violating the eviction controls. That end run is not possible.
Posted by: tipster at December 18, 2008 1:09 PM
So if I own a rent-controlled building and I'm facing foreclosure, can I rent out the units to my friends & family for $1/month before the bank takes over? And the bank can't evict the tenants nor raise the rent?
Posted by: W at December 18, 2008 2:24 PM
I like your thinking very much, W. The central planning elite think that average people are stupid, and never fully grasp that the average person is quite a bit more resourceful than the elite imagines.
Posted by: LMRiM at December 18, 2008 3:08 PM
Not sure why LMRiM thinks W is all that resourceful. Sure, in theory, a person could rent all their units out to friends and family for $1. However, that assumes that all the units are already empty. Which I suppose would explain why the building is in foreclosure. A cute little scenario to be sure, but not all that realistic.
Posted by: BRCGranny at December 18, 2008 3:55 PM
Eviction control applies only after one year. And foreclosure instantly voids a lease. So if they foreclosed, then evicted, within the year, no luck.
If the foreclosure proceedings were not done within that year, the tenant would have eviction control. However, I THINK the rent controls don't apply if the rents are very below market and there is a relationship between the parties. So your plan wouldn't work for $1. The bank could raise the rent to market, but would not be able to evict.
If you charged market rates and then the rents went up and the foreclosure took a year, your friends/relatives would be set, like any other tenant.
Posted by: tipster at December 18, 2008 4:43 PM
Have to take exception to the argument that SF has more condos going up than apartments because of rent control. That might have been true once, but for the last 10 years most multi-unit developments in cities all over the country were condos, not rentals.
Rent control had nothing to do with it. This happened on a huge scale in Miami and Philadelphia, where there is no rent control. of course, there were also rampant conversions there, and none of the politicians crying over foreclosures now gave a flip about people "being able to stay in their homes'' then.
The banks and their rapacious lending practices were responsible for all those evictions, even more so than they were responsible for the current foreclosures. At least, the idiot "buyers'' had a choice in whether to take out the loans and take a role in the bogus ownership society. The displaced tenants had no say; when the banks wanted to put their homes in someone else's hands for a fat profit, it just happened.
In any event, the condo developments -- not conversions -- were part of a paradigm shift. Developers didn't want to do property management anymore. It was smarter to get in and get out.
In SF, that didn't necessarily mean that the rental stock stagnated. Look at the number of One Rincon et al. addresses up for rent on Craigslist.
Posted by: mary at December 18, 2008 6:54 PM
Mary I really do not get your point at all. I agree that the majority or new developments have been condos in the last 10 years - condos in the city are expensive and have been a good product to build and sell. Apartments are not as good an investment here for developers. Condo conversion restrictions and rent control have both contributed to this. Even though new construction is exempt from the rent ordinances, developers would rather realize their gains immediately though a sale of a high priced product (condo) than wait around for the rents to make them money.
Rent control clearly contributes to a developers decision to build or not build rental units in San Francisco because it scares the crap out of owners. Though the 1996 Costa-Hawkings legislation and the original 1979 ordinance established and affirmed the current 1979 demarcation line for buildings that are and are not subject to rent control - fear that the laws could be amended substantially contributes to a developers decision to make apartments or condos.
I Can't speak to Miami or Philly or anyplace else, but this is how it is here.
Posted by: Eoral at December 18, 2008 8:05 PM
Let me try to simplify the argument: if rent control were reducing the number of apartments built, one would expect to find more apartments built in areas without rent control than in areas with rent control. Miami is an area without rent control, and no fear of rent control, but almost no apartments were built there, just like SF, so clearly something OTHER than rent control is preventing apartments from being built because the SAME number of apartments are being built regardless of the rent control laws.
What is the reason? Most likely the tax subsidies of ownership coupled with a low interest rate environment and virtually non-existent underwriting, no recourse loans and steady gains with which financing options exist to extract those gains at the time they occur (and stick the bank with any losses, even if the losses occur later under the same owner who actually would still be net positive from his original purchase price) make that the highest and best use in an area in which incomes are high enough to fully use the tax deductions available from owning.
Rent control? Nah.
Posted by: tipster at December 18, 2008 9:02 PM
Here's the Deal:
If you have a lease, it goes with the property not the owner, so if the home is foreclosed, the terms of the lease still apply.
If you are on a month-to-month and are worried, demand a lease, but remember they are two way streets. Just as you are protected from eviction, you also have to rent the home for the entire lease term.
Posted by: Mystery Realtor at December 19, 2008 9:34 AM
^^^If you're in a rent-controlled apartment, isn't the lease irrelevant? Once you sign the lease (say for a year) and then get to month to month status, you're still protected, no?
Posted by: anon at December 19, 2008 9:42 AM
"If you're in a rent-controlled apartment, isn't the lease irrelevant? Once you sign the lease (say for a year) and then get to month to month status, you're still protected, no?"
I'm also interested in this as it pertains to foreclosures and eviction protection. Does anyone know the situations around it?
Posted by: MarkEvans at January 26, 2009 7:31 PM
Foreclosure voids any lease. You are on month to month after the auction on the courthouse steps.
A state law requires all tenants in a foreclosed property to get 60 days notice.
Eviction control requires just cause for eviction. All properties built before 1979 in the city of SF are covered by eviction control laws, even if they are not covered by rent control laws. They are two different things.
The bank will not likely want to evict any tenant from an SF property, but the new owner probably will. The new owner can do an owner move in with 60 days notice and about $4800 per person up to $14,000 (approximate) or an Ellis Act Eviction with minimum 120 days and more likely 1 year notice.
Posted by: tipster at January 26, 2009 9:57 PM