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Tips for Oregon REO Property Owners in Navigating the New Landlord-Tenant Terrain

Posted By USFN, Monday, August 12, 2019

by Randall Szabo, Esq.
The Wolf Firm
USFN Member (CA, ID, OR, WA)

In February, Oregon Governor Kate Brown signed into law sweeping amendments to the Residential Landlord-Tenant Act (ORS Chapter 90) (“RLTA”), imposing the nation’s first statewide rent control. As a result of an emergency declaration, Senate Bill 608 (which overturns a more than 30 year-old-rent control prohibition) took effect upon passage.  At its core, the new law imposes a cap on most rental increases and a prohibition on most no-cause evictions.  While the law constitutes a massive sea of change in the world of landlord-tenant law, it may appear at first glance of little consequence to owners of REO properties, as they are generally exempt from the complex requirements of the RLTA.  However, one wrong move can bring these onerous requirements front and center.  With a good understanding of both the new law and existing foreclosure law, these results can be mitigated if not avoided altogether.

While the fanfare of SB 608 mostly surrounds its rent control provisions, more consequential, in the context of REO properties, are the substantial obstacles the law imposes on terminating tenancies. The law provides different treatment for month-to- month and fixed-term tenancies.  A landlord may terminate a month-to-month tenancy during the first year of occupancy (the tenant’s first year—not the first year the new owner takes title) without stated cause.  After the first year a month-to-month tenancy may only be terminated for a “tenant cause” or a “qualifying landlord reason.”  Similarly, a fixed-term tenancy may be terminated without cause at the end of the term if the term expires within the first year of occupancy.  However, if the term expires after the first year of occupancy, the fixed-term tenancy converts to a month-to-month tenancy unless:

 

a)    the landlord and tenant agree to a new fixed term;

b)    the tenant leaves voluntarily; or

c)    the landlord has a qualifying reason for termination.

 

“Tenant causes” for eviction include material violations of the rental agreement and other specific causes as set out in ORS Chapters 86 and 90. The “qualifying landlord” reasons for eviction are:

 

 a) converting the premises to a non-residential use;

 b) initiating repairs (if the premises is or will be unsafe or unfit for occupancy); and

 c) having accepted an offer to purchase the property.

 

 A landlord who terminates a tenancy in violation of the above could face liability of three times the monthly rent plus actual damages, and the tenant may have a defense in an action for possession.

The rent control aspect of the law is relatively straight forward. A landlord may not raise a tenant’s rent during the first year of occupancy, and after the first year may raise the rent no more than seven percent plus the consumer price index during any 12-month period.  Exceptions are listed for newer constructions (less than 15 years old at the time of the rent increase), and landlords who provide decreased rent as part of a government subsidy or program. Penalties for violating the statute are set at three times the monthly rent plus actual damages.

The issue is, are these protections applicable to REO property owners?  The answer is, perhaps. A landlord-tenant relationship may be created involuntarily.  In the context of non-judicial foreclosure, the purchaser at a trustee’s sale may inadvertently form a landlord-tenant relationship by failing to terminate the tenancy within 30 days from the date of sale.  See ORS 86.782(9)(a)(C).  While failure to timely terminate the tenancy has always had some issues, this omission now creates the more problematic tenancy which may only be terminated by following the new law’s onerous requirements.

A new owner can also run into trouble by accepting rent from the existing tenant. ORS 86.782(9)(a)(A) explicitly provides that a purchaser after a trustee’s sale becomes a landlord if the purchaser accepts rent from an existing tenant.  While it may be tempting to accept rental payments from an existing tenant, particularly one who has the ability to remain in the premises for the remainder of a lease pursuant to the Federal Protecting Tenants in Foreclosure Act, local counsel should be consulted before accepting any form of payments from an existing occupant.

Although the purchaser at a sheriff’s sale following a judicial foreclosure is generally exempt from the requirements of ORS Chapter 90, we anticipate an argument to be made to extend these prescriptive landlord-tenant relationships into the post-judicial context.  We would expect this in the situation in which a new owner follows ORS 18.946(2), which allows a tenant with an unexpired lease to remain in occupancy until the end of the lease or until the expiration of redemption “if the lessee makes the lease payments to the purchaser or redemptioner, or pays to the purchaser or redemptioner a monthly payment equal to the value of the use and occupancy of the property, whichever amount is greater”.  SB 608 provides that a trustee’s sale constitutes cause for terminating a tenancy, See e.g. SB 608 §1(3)(c)(A), however, no such provision is specified in the context of a judicial sale.   It is unknown if the legislature simply found it unnecessary given a long history of not applying landlord-tenant law in the judicial-foreclosure context.  Nonetheless, we do anticipate the issue to be raised. Thus, it is important to consult with local counsel before accepting funds from an occupant.

In the event that a landlord-tenant relationship is created, there may be no simple way to terminate the tenancy, but the new landlord does have options. As stated above, the tenancy can be terminated if the property is sold or in need of repairs, but certain conditions must be met and specific procedures followed in order to terminate the tenancy for either of these reasons. Therefore, consultation with local counsel is strongly advised. Fortunately, the creation of a tenancy to which the RLTA applies can be avoided by following these procedures:

 

a) within 30 days of a trustee’s sale, provide written notice of intent to terminate the tenancy; 

b) do not have communications with occupants that could be construed as agreeing to a new or continued tenancy; and

c) do not accept any payments from occupants without first consulting with counsel.
 

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