Q. A couple of years ago, I sold my house in the District of Columbia and took back a first mortgage (deed of trust). My buyer rented the house out last year, and apparently his tenants are not paying their rent. As a result, my buyer has not been paying me money, and I am thinking seriously of foreclosing on the property. However, I have heard that it is difficult to evict tenants under those circumstances and want your advice on the legal situation.
A. Your letter came at a very significant time. The District of Columbia Court of Appeals -- the highest court for the District -- recently ruled that tenants cannot be evicted after foreclosure, provided, of course, that they pay their rent.
This has been a very gray area in the law for a long time, and I am pleased that the Court of Appeals finally decided this issue. In 1978, in a case known as Simpson v. Jack Spicer Real Estate Inc., the court held that a property owner who defaulted on a mortgage and continued to live in the former house after it was sold at a foreclosure sale was not protected by the D.C. statutory eviction restrictions. However, the case law was silent -- as was D.C. law -- on whether a tenant (not the property owner) could be evicted under similar circumstances.
In a recent case involving the Veterans Administration, titled Administrator of Veterans' Affairs v. Valentine, decided in April, the Court of Appeals categorically stated that there is a difference between a tenant -- protected by the D.C. rent control laws -- and a former owner who is not entitled to those protections.
According to the court, "One of the purposes of the [rental housing] act is 'to protect the existing supply of rental housing from conversion to other uses' . . . before the foreclosure, Valentine's apartment was clearly a part of the existing supply of rental housing in the District; to allow the VA to evict her would have opened the way to conversion of that building to other uses. In Simpson, on the other hand, the property had not been part of the District rental housing stock, so permitting the former owner's eviction did not diminish the supply of rental units."
Thus, in the District of Columbia, when a deed of trust is foreclosed upon, the owner of the property can be evicted, but the tenant cannot be -- provided, of course, that the tenant continues to pay rent.
Under applicable District of Columbia law, there are specific grounds for eviction. These include:
Nonpayment of rent.
Violation by the tenant of an obligation of his tenancy where the tenant fails to correct the violation within 30 days after receiving from the landlord a notice to correct that violation.
Performance of an illegal act by the tenant within the rental unit.
A good-faith intention by the landlord to use the premises for his own personal use as a dwelling.
A good-faith written contract by the landlord to sell the unit for the personal use of the purchaser as a dwelling, but only after the tenant has been given notice and an opportunity to purchase the unit.
In addition, D.C. law imposes restrictions on displacement of tenants for the purpose of rehabilitating or demolishing the housing accommodation.
There was a dissent by Justice John A. Terry to the majority holding of the court. According to the judge, the "decision of the majority in this case will have immediate impact on banks and other lending institutions in the District of Columbia. It will turn any foreclosing lender who acquires title to property that happens to have a residential tenant into an unwitting -- and often unwilling -- landlord, subject to the stringencies of the rental housing act. The result could very well be a drying up of available mortgage funds for the purpose of rental properties in the District."
Whether the views of the dissenting judge will prove prophetic is a matter that only time will tell. In the meantime, however, tenants who continue to pay their rent cannot be evicted because their landlord has been foreclosed upon.