Tenants Rights After a Foreclosure Upheld by California Court of Appeal

LeaseAgreement Photo

Last week, the California Court of Appeal reversed a trial court’s earlier decision and instead ruled in favor of Rosario Nativi, and her son Jose Roberto Perez Nativi, two tenants who were evicted when their landlord was foreclosed on.   The mother and son had been renting the garage of a house for several years in Sunnyvale, and then in 2009, the property was foreclosed.  The Nativis did not realize their landlord had stopped paying the mortgage, and had continued dutifully paying their rent.

After the foreclosure, Deutsche Bank became the owner of the property, and hired American Home Mortgage Servicing, Inc to service the property.  American Home Servicing, Inc, then hired XL Advisors Inc. dba Advisors Real Estate Group (Advisors), to prepare the property for sale and remove the tenants.

Despite the fact that the Nativis had a lease, representatives of Advisors Real Estate Group removed all of  their belongings and put them outside where they were ruined. Advisors Real Estate Group also called the police when the Nativis tried to regain access to the garage they had been renting.  The tenants sued, and a trial court ruled in favor of Deutsche Bank.  However, the California Court of Appeal reversed that decision on January 23, 2014.

Madeline Howard, who helped initiate the case while at Bay Area Legal Aid and is currently a staff attorney with Western Center on Law & Poverty, explained the significance in a press release: “Because of this decision, tenants like the Nativis, who were locked out of their apartment and left homeless, have recourse in state court.”

The story of a bank becoming the owner of a home after a foreclosure trustee sale is common in California.  Unfortunately, so is the experience of these two tenants who had continued paying their rent and should not have been evicted.  After a trustee sale, some real estate agents will try and get the current tenants out of the property as quickly as possible, offering cash for keys, making illegal threats, or even calling the police.  Tenants may or may not know their rights, and the real estate agents may take advantage of this and try and force them out quickly.

Kent Qian, from the National Housing Law Project, explained the decision is an important victory for tenants under the Protecting Tenants at Foreclosure Act (PTFA), for three reasons:

1) The court ruled that bona fide leases “survive” foreclosure under the PTFA;

2) Tenants in illegally converted garage units are protected under the PTFA; and

3) State law claims can be brought to enforce the PTFA.

As the WCLP press release explains, “the federal Protecting Tenants at Foreclosure Act requires post-foreclosure owners, including big banks, to step into the shoes of the former landlord when they acquire a rental property.”

To read more about the case, visit:

Western Center on Law and Poverty Press Release: “Court of Appeal Rules that Big Banks Step into Shoes of Foreclosed Landlords When Trying to Evict Tenants” 

Law 360 “Calif. Leases Survive Foreclosures, Appeals Court Says

To read the decision, visit this link: Court Opinion.

If you are a tenant who is losing your housing because your landlord is being foreclosed on, you may want to visit the Tenants Together Action Guide for California Tenants in Foreclosure Situations  or call their Tenant Rights Hotline.

The Western Center on Law and PovertyBay Area Legal AidAlborg, Martin & Buddle LLP, and Jenner and Block represented the Nativis.

An amicus curiae brief, drafted by the National Housing Law Project and AARP Foundation Litigation, was filed on behalf of the National  Housing Law ProjectNational Law Center on Homelessness and Poverty, the AARP Foundation Litigation, the National Fair Housing Alliance, and the California Reinvestment Coalition in support  of the Nativis.

10 Things you may not know about payday loans and the companies that make them

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

 

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

1. Payday lenders would not survive without financing from banks and Wall Street. Adam Rust, Director of Research at Reinvestment Partners, and author of the blog Bank Talk, recently highlighted this in his post: “High-Cost Consumer Finance Companies Extol the Benefit.” Rust uses statements from companies like National Money Mart and First Cash Financial to illustrate that Wall Street plays an important role in funding services like payday lenders and pawn shops. Read more: “High-Cost Consumer Finance Companies Extol the Benefits” by Adam Rust, Bank Talk Blog, July 30, 2013.

2. Payday lenders LOVE people with Social Security! Why? Because Social Security is a regular payment, so repayment of their loan is virtually guaranteed. According to the Detroit Free Press, Patricia Guy, A 62 year old in Detroit, who receives Social Security, took a loan from Western Sky after seeing an ad on TV that said this it was a good way to pay off payday loans (she had two at the time and thought she could use the new loan from Western Sky to pay them off).

Ms. Guy is paying 139.13% interest for this loan. In other words, to borrow $2,525, she will pay $11,412.12 in interest over the course of four years. The Michigan State Department of Insurance and Financial Services is trying to kick Western Sky out of the state, with a hearing set for September 24th. Read more here: “Debt can soar for users of quick-fix loans” Susan Tompor, Detroit Free Press, August 12, 2013.

3. Payday lenders exploit loopholes. In Ohio, they have exploited so many loopholes in a 2008 state law that the Toledo Blade recently editorialized against them, suggesting “Lawmakers must close the loopholes to make the Short-Term Lending Act work as it was designed to, including a ban on auto title loans secured by a consumer’s car. Essentially, any payday-style loan must be subject to the 28 percent cap.” Ed Mierkwinski recently captured the dynamic of payday lenders trying to use loopholes to get around predatory lending laws: “Playing ‘Whack-a-Mole’ With Predatory Lenders” (US News and World Report , Opinion, August 13, 2013) Read the Toledo Blade’s editorial here: “Swimming with sharksToledo Blade. August 12, 2013.

4. Federal regulators are starting to pay attention to online payday lenders: According to an article by the Center for Public Integrity, six different federal agencies are now investigating online payday lenders, and the Justice Department has already subpoenaed more than 50 financial companies, “mainly banks and the payment processors that connect consumers to online lenders and other companies that Justice thinks may be operating fraudulently.” Six federal agencies are investigating online payday lenders” Daniel Wagner, Center for Public Integrity, August 8, 2013

5. They make payday loans in the United Kingdom, and it’s been the focus of government officials and advocates all summer:

Some payday lenders decided they would rather close shop than follow the law. During a “Payday Lending Review” by the Office of Fair Trading in the United Kingdom, the regulator identified areas of noncompliance with 50 payday lenders. Of these 50 lenders, 13 of them decided to stop doing business instead of complying with the law. Read more: OFT Payday lending compliance review 

One payday lender in the UK recently tried collecting money from people who never had loans with them. Unfortunately for them, one of the people they sent a collection email to was a banking law expert in the United Kingdom. He received a collection email from “Quick Quid,” (a payday lender) who eventually acknowledged (after wasting his time) that he never owed them a debt. In response, a British Prime Minister accused Quick Quid of “dodgy dealings.” Read more here: “Payday loan firm Quick Quid demands cash from Ancoats bank expert who had never borrowed any” Jennifer Williams, Manchester Evening News, August 12, 2013.

6. State Attorneys General don’t like payday lenders. In July, Georgia’s Attorney General sued CashCall Inc, and Western Sky Financial, LLC (Western Sky), demanding that they stop breaking Georgia state law, specifically, the Pay Day Lending Act which prohibits offering these types of loans, including online. Georgia consumers have complained that CashCall representatives have “harassed them with repeated telephone calls, obscene and abusive language, threats of wage garnishment or other legal action, and even going so far as to call consumers’ employers to threaten wage garnishment.” Read more: Attorney General Olens Files Suit to Protect Georgia Consumers from Illegal Payday Lenders 

Similar to Georgia, New York’s Attorney General, Eric T. Schneiderman, is also suing Western Sky Financial. He is suing them for violating New York usury laws that limit interest rates at 25 percent. According to the New York Times, the AG believes that Western Sky has made 17,970 loans in the past three years, with interest and fees totaling almost $185 million. New York is one of at least 9 states going after lenders with ties to American Indian tribes. Read more: “Suit Accuses Online Lender of Violating New York Rate Caps” by Jessica Silver-Greenberg, DealBook, New York Times. August 12, 2013.

7. Cities across the U.S. are passing laws to stop payday lenders. The California Reinvestment Coalition is proud of our work in California to restrict harmful payday lending in Sacramento, San Francisco, Oakland, Oceanside, San Diego, and more recently in San Jose, as part of the Coalition Against Payday Predators (CAPP). Currently, we are excited to work with CAPP on local ordinance campaigns in Gilroy and Sunnyvale, and to support our allies and partners in the cities of Fresno and Long Beach.

We are also encouraged to see cities in other states taking on the payday loan industry-

Texas: On August 2, 2013, the Town of Flower Mound became the 7th city in Texas (including Austin, Balcones Heights, Dallas, Denton, El Paso, and San Antonio) to adopt an anti-payday lending ordinance. The Texas Municipal League also started a payday lending clearinghouse with helpful information, including example ordinances and lawsuit pleadings for other city leaders who are considering legislation against payday lenders.

Iowa: Cedar Rapids was the sixth city in the state to enact stronger regulations against payday lending. According to the Associated Press (“Iowa cities take on payday lenders with zoning laws” June 17, 2013), Ames, Clive, Des Moines, Iowa City, and West Des Moines have already enacted legislation aimed at limiting payday lenders.

Read More: Texas Municipal League Payday Lending Clearinghouse  
Read More: “Iowa cities take on payday lenders with zoning laws” by Associated Press. June 17, 2013.

8. There’s nothing more unpatriotic than taking financial advantage of soldiers, but it still happens. Twenty-three senators and 53 members of the US House of Representatives recently weighed in on this topic, asking the Department of Defense to close a loophole in the Military Lending Act that has allowed lenders to offer high-interest, triple-digit interest rate loans to soldiers. Read more: “Congress to Pentagon: Save the Troops From Predatory Lenders” by Erika Eichelberger, Mother Jones, August 9, 2013.

9. Payday lenders have redefined “sleazy campaign tactics.” Propublica’s recent expose: “The Payday Playbook: How High Cost Lenders Fight to Stay Legal” shines a bright light on industry tactics recently used to stop a proposed law in Missouri. Payday lenders used secret funds to threaten and intimidate churches, harass community organizers who were trying to get petitions for a ballot initiative, filed decoy laws to confuse voters, and even hired a former NFL player to be their spokesperson. All of these tactics were used to stop a law that would have capped interest rates at a reasonable 36%. Read more: “The Payday Playbook: How High Cost Lenders Fight to Stay Legal” by Paul Kiel, Propublica, August 2, 2013.

10. Payday loans are also offered by banks.  Banks also make short-term, small dollar amount, high-interest loans, but they try and dress up the high interest rates on these loans by using language such as “direct deposit advance” (Wells Fargo), or “Checking account advance” (US Bank), or “Ready Advance” (Regions Banks).

With a few clicks of the mouse, customers can obtain loans with sky-high interest rates. At a recent Senate hearing about these bank payday loans, a lobbyist for the banks struggled to explain the difference in storefront payday loans and the payday loans made by banks to Senator Elizabeth Warren (D-MA). Senator Bill Nelson (D-FL), Chair of the Senate Select Committee on Aging, (committee which held the hearing), also pointed out that making these types of loans is virtually risk-free for the banks since the customer has to have a source of income to qualify for the loan.

Annette Smith, a senior from California, testified at the hearing about her experience trying to pay back a Wells Fargo direct deposit advance on her Social Security income of roughly $1,200 a month. Read CRC’s perspective on the hearing here. “Hearing Focuses on Direct Deposit Advances, are They Different than Payday Loans?

A coalition of groups in Illinois, Missouri, and Iowa, recently started a campaign against Regions Bank for offering its version of a payday loan, known as a “Ready Advance” loan. George Goehl, executive director of National People’s Action explained that groups are organizing against bank payday loans because “Banks should help people build wealth, not strip it away.” Read more here: “Groups call on bank to stop offering ‘predatory’ payday loans” Jessica M. Karmasek, Legal Newsline Legal Journal. August 12, 2013.

Are you a Californian who has used a payday loan and would like to share your story? Do you want to get involved in local efforts to restrict payday lending in our communities? If so, please contact Liana Molina, CRC’s Payday Campaign Organizer: Liana@calreinvest.org  or 415-864-3980.

To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via Twitter, watch our movies on our YouTube Channel, sign up to receive our newsletter and action alerts, and of course, visit our website.