Just When You Thought It Was Safe To Go Back Into The Real Estate Market: Congress Amends Obama Tenant Protection Law To Hurt Real Estate Investment

Remember the trumpeted financial reform bill that Congress passed in late July? You know the one, the new round of regulations that would abolish greed, protect us from Wall Street, the slap-on-the-wrist political payback for the bailouts, the kind of major legislation that results in hours of cable news face time for politicians standing in front of too many flags.

Not noticed among all of the pomp surrounding the law’s passage was a small provision within it pertaining to, oddly enough, state landlord-tenant law. Congress must have calculated that, while it was burdening even the most honest financial institutions with new regulations, it would be “germane” to take a shot at the real estate investor as well.

Whether the “financial reform” law delivers on all the windy promises or, more likely, is just another set of expensive regulatory and compliance headaches for law abiding firms that didn’t get bailout money, will have to await a future article. Tucked away inside the bill, however, and germane to this article, was an amendment to President Obama’s Protecting Tenants At Foreclosure Act.

If you read my June 15, 2010 post, I wrote about the Act at length. One of my criticisms was that the Act failed to define “Notice of Foreclosure”, a critical term for deciding whether a real estate investor at foreclosure purchased a tenant-occupied property subject to the tenant’s existing term lease. Prior to the Obama law, the answer was nearly always “no”, the new investor bought the property free and clear of all junior encumbrances, including leases, which were extinguished by the foreclosure sale.

Thus, the new investor knew when bidding that he could buy a tenant-occupied property and “flip” it, i.e. fix it up and offer a renovated and vacant property to the market in short order. Because “flippers” sell their properties at fire sale prices, the new family coming in could often times obtain the property with equity already in it. It is from this process of fresh investment and profitable transactions that the real estate market digs itself out of a recessionary hole with the resulting appreciation in values being a tide that lifts everyone’s boat.

Under pre-Obama law, the new investor had no reason to be concerned about tenant occupancy because he knew that the foreclosure sale wiped out the lease. Obama’s blow-hard Protecting Tenants At Foreclosure Act changed that. Now, a real estate investor buys at foreclosure subject to any existing term lease. (All other leases require a needlessly long 90-day notice to terminate).

Thus, if a tenant has a term lease with ten months remaining on it at the time of foreclosure, the tenant gets to stay for that ten months even if the lease came after the deed of trust foreclosed upon. In other words, the real estate investor is stuck. He has no way of knowing prior to the foreclosure sale whether the tenant has a month-to-month lease requiring a 90-day notice to terminate or a term lease with God knows how much time left on it.

The result is that investors will pass on tenant-occupied properties leaving the bank to credit bid and add to its glut of inventory of foreclosed properties or investors will lower their bids to take into account the investment uncertainty. Either way, the law’s result is the same, it slows recovery by either keeping fresh money out of the foreclosure process or it contributes to downward pressure on the real estate market because foreclosed properties will not realize their full bid potential. The law was completely unnecessary-and nothing more than political window dressing and pandering to the more numerous tenant voter-because existing state law already adequately protected the rights of tenants. 

Back to the language of the Obama law. Whether a term lease survived foreclosure depended upon whether it was entered into before “Notice of the Foreclosure”. However, Congress failed to define “Notice of Foreclosure” in the original text of the law. Congress fixed-for lack of a better word-that problem in the financial reform bill on July 21, 2010.

The term “Notice of Foreclosure” was critical to the law’s reach. If Congress defined “Notice of Foreclosure” to mean earlier in the foreclosure process, i.e. closer to the underlying default by the prior property owner, such definition would better serve the real estate investor since it would mean that fewer term leases would qualify and, as to those that did, less time would remain on them after foreclosure.

If, however, Congress defined “Notice of Foreclosure” further out, say closer to the actual foreclosure sale, such definition would be better for tenants because it would bring more term leases within the ambit of the law and such leases would likely have more time left on them after the foreclosure.

Would anyone like to guess which option Congress and the President chose? You guessed it. Congress chose the latter, determining in the fictional world of politics that the tenant does not get “Notice of Foreclosure” until the moment of the actual foreclosure sale.

In reality, the tenant knows about the foreclosure months before the sale. Also, the tenant doesn’t get notice of the foreclosure at the time of the property’s auction since the tenant isn’t present for it. Thus, Congress chose to define “Notice of Foreclosure” at the very instant in time where the tenant doesn’t get notice of the foreclosure. Since the law was political from its inception, however, it shouldn’t be surprising that logic and fact as considerations finished dead last in its wording. The effect of the Notice of Foreclosure definition is that any term lease entered into before the moment that the trustee bangs his gavel is enforceable against the new investor and the property is burdened with it.

Congress didn’t bother to clarify the more looming ambiguity in the law, namely, whether the tenant with a month-to-month lease must pay rent during the 90-day notice period required to terminate his tenancy. Since the law is a political sop for the tenant voter base, it follows that the law won’t even pretend to be fair to real estate investors. After all, Congress and the President instructing tenants to pay rent would ruin the political ambitions of the Obama law.

 

 

Common Issues in California Rental Property Management: Disposition of Tenant Personal Property Left After Conclusion of Tenancy

Your tenant vacates. You start the process of turning the property around but are astounded to find that the tenant has left behind a couple of car loads of his personal property. What do you do? Short answer: Be careful. Be very, very careful. The problem of seemingly abandoned tenant personal property occurs most commonly when the tenancy has ended on less than favorable terms, usually eviction. In my experience, tenants that leave property behind are the most troublesome ones and the most likely to re-appear in your life.

I have seen landlords and their insurance companies have to pay out big bucks to undeserving tenants because the landlord failed to follow the correct procedure for disposing of the tenants’ personal property. The rickety end table and orphan left tennis shoe may look like junk. And the tenant obviously didn’t care much about them. But that won’t stop the tenant from later claiming in his lawsuit that the flea market possessions which he left strewn about your rental property were really worth a king’s ransom. Follow the correct procedure and protect yourself.

If the tenant’s property is truly junk, the law allows you to keep or throw out any property that the landlord “reasonably believes” is worth less than $300.00 resale. In such a case, the landlord must serve the tenant with a notice, personally or by first-class mail, stating the landlord’s intention to throw out the property if the tenant doesn’t claim it within 15 days (18 days if service of the notice is by mail). The notice must be served on the tenant at the tenant’s last known address. I recommend to clients that they serve the notice at all known addresses for the tenant, including work addresses and relatives’ addresses written on the rental application.

If you do elect to throw out tenant property, make sure that you inventory and photograph the property. You must have a persuasive record of what property you threw out should the tenant come back at you later and claim that you threw away his valuables.

If the tenant’s property remaining on the premises likely exceeds $300.00 in value, the law provides a procedure for getting rid of the property that you must follow strictly. First, you must serve the tenant with a Notice of Right To Reclaim Abandoned Property. (I provide a form notice as part of a packet of forms that I give to my to landlord clients free of charge).

You may serve this notice on the tenant either personally or by first-class mail to the tenant’s last known address. To be safe, I also advise my clients to serve the notice on all known addresses of the tenant’s, including relatives listed on the rental application. You must also serve this notice on any other person, besides the tenant, that you believe may be the owner of the property.

The notice has strict content requirements relating to the description of the property and the place where the tenant may claim it and informing the tenant that he must pay the reasonable cost of storing the property before he can get it back. The notice must also state the deadline for the tenant to claim the property, which must be at least 15 days after the tenant is served with the notice (18 days if the notice is served by mail). The notice must provide the name, address, and telephone number of the landlord or his representative and a warning to the tenant that his property will be sold at auction if not claimed.

While waiting for the 15-day period to expire, I advise landlords to store the property at the premises if possible. If the tenant contacts them, I tell the landlords to set up a time for the tenant to come and get the property. When the tenant’s property is still at the premises, I tell clients not to bother trying to charge the tenant for “storage”. The reason that I tell clients to just let the tenant have his property is because the ensuing dispute isn’t worth the storage reimbursement. If the tenant shows up to claim his property and leaves without it, I guarantee you that the first place that he’s going after arguing with you over storage charges is straight into the open arms of the tenant attorney.

If the tenant has left so much property behind that it can’t be stored at the premises, such as the case where the tenant was evicted and didn’t move anything out beforehand, then you may have to move the property into storage. In such a case, the landlord is entitled to his moving and storage costs before he has to release the property to the tenant. I’m more inclined in such an instance to advise my client to stand on his rights to reimbursement before releasing the property because of the amount of expense, time, and trouble that the tenant has caused my client.

However, if the tenant does re-appear to claim his property, I advise clients to give the tenant an itemized list of storage and moving costs and supporting documentation. In any case where my client does release property to the tenant, I recommend that the landlord have witnesses to the tenant taking back his property and, if possible, that the landlord document the event with a camcorder.

So, what happens if the tenant does not claim his property within the 15 days? The property must be sold at public auction. Call an auction company. They’ll come and pick-up the property. An important point: once the auction date is set, make sure that you publish notice of the auction. Notice of the auction must be published once per week for two weeks in a newspaper of general circulation. If you fail to publish the notice, you are opening yourself up for liability to the tenant.

After the property is sold, the auction company takes its share, the landlord may be reimbursed for all costs of storage, moving and publishing notice. Any balance must be paid over to the tenant or, if he can’t be found, to the county.

As you can see, California law is complicated on this point. The best advice would probably be to just contact a lawyer if your tenant leaves behind any substantial amount of property. If the landlord follows the procedure, he’s protected from liability. If not, the landlord may have to bear the cost of an uninsured liability straight out of his own pocket.

Common Issues in California Rental Property Management: Security Deposits

A landlord in California may obtain from the tenant, at the inception of the tenancy, a security deposit of up to two months’ rent for an unfurnished premises and up to three months’ rent for a furnished premises. The security deposit may be in addition to the first month’s rent charged in advance.

The landlord must hold the security deposit for the benefit of the tenant. The landlord may only deduct from the security deposit for unpaid rent, damage to the premises except for ordinary wear and tear, and cleaning the premises so as to return it to the same condition that it was in at the start of the tenancy.

Where one party terminates the tenancy (other than for breach of the lease or failure to pay rent), the landlord must give the tenant, within a reasonable time after notice of termination, written notice of the tenant’s right to an inspection and advance notice of deficiencies that could result in deductions from the deposit. The tenant must then request the inspection. If the tenant does so, the landlord must inspect and give the tenant an itemized statement of problems with the property’s condition so that the tenant has the opportunity to correct them prior to move-out. The parties then typically schedule a final walk-through where the landlord can check to see if the tenant has corrected the problems.

The landlord has 21 calendar days after the tenant vacates to give the tenant, by personal delivery or by first-class mail, an itemized statement showing all deductions from the security deposit and return to the tenant any unused portion of the deposit. For all deductions, the landlord must also provide supporting documentation such as invoices, bills, receipts, etc. If the landlord fails to account for the security deposit to the tenant, the tenant may sue for return of the deposit. If the tenant can show that the landlord’s retention of the deposit was in bad faith, the court may award the tenant a statutory penalty of up to two times the amount of the deposit.

Common Issues in California Rental Property Management: Tenant Abandonment

Tenants who are behind in the rent commonly just pack up and go without saying a word to the landlord and with time left on their lease. When you believe that your tenant has fled under cover of darkness and that your rental property is now uninhabited, what should you do?

The answer has two parts. First, you need to terminate the tenancy and prevent the tenant from returning. California law provides a simple method to achieve that goal. The landlord in such a circumstance need only serve a Notice of Belief of Abandonment on the tenant. (I provide a form notice as part of a packet of forms that I give to my to landlord clients free of charge). When can the landlord serve such a notice? The tenant must be fourteen days behind in the rent. The landlord must also “reasonably believe” that the tenant has abandoned the premises.

By “reasonable belief” the law means that the landlord must have facts that reasonably lead him to the conclusion that the tenant has left, facts such as accumulating mail or newspapers, disconnected phone or utilities, lack of vehicles, failure of the tenant to answer the door, and, if it’s possible to see in from the outside, the appearance that the premises are empty. Just to be sure, I advise clients to post a 24-hour notice of entry on the door and then return the next day and enter the premises to check if the tenant has moved out.

The next step is to serve the notice. The notice must be in writing and served at the tenant’s last known address, which is usually your rental property. I also advise clients to serve the notice to all addresses where the tenant is likely to receive it such as work addresses or the addresses of relatives stated on the rental application. The notice can be served either personally or by first-class mail.

Once the landlord serves the notice, the tenant has 15 days (18 days if the notice was served by mail) to respond in writing. In the response, the tenant must state that he has not abandoned the premises and must provide the landlord with an address where the tenant may be served by certified mail with any eviction case. If the tenant does not provide such a writing within the 15 or 18 day time period, then his tenancy is deemed terminated and the landlord may re-let the premises. The landlord is also free to serve a 3-day notice to pay rent or quit at any time permitted by the lease.

Second, the tenant’s abandonment does not cut-off his obligation to pay rent. The landlord must use reasonable efforts to find a new tenant. If the landlord does so, the abandoning tenant is still obligated for the rent through the end of the term. The tenant’s obligation ends when the landlord finds a new tenant, assuming that the new tenant is paying the same or higher rental rate. Once a new tenant is found, the landlord will be able to calculate the lost rent due to the tenant breaking the lease and may sue the former tenant.

　

Tenancy After Foreclosure: Obama “Tenant Protection Law” Obscures Previously Clear California State Law And Gives Rise To Tenant Scams

Aaah, the good ‘ol days, back when in 2008.  Life was so much simpler then.  When an investor purchased real estate after foreclosure in California, the trustee conveyed clear title to the new owner.  All junior liens, including junior leases, were wiped out.  If the property had a tenant, no worries, the new owner need only give a 3-day notice if the tenant was the prior owner; a 30-day notice if the tenant was a third party. 

     Planning was easy; so was turning around a dead property and putting it back on-the-market, ready for a new family, occupied, useful and socially beneficial again, typically at a windfall savings to the new homeowner.   In July 2008, the California legislature, with our Governator’s consent, increased the 30-day tenant notice period to 60 days, not a great piece of news for the much-needed California real estate investor but at least the new law was clear and the investor could still plan. 

     And then came Barack.

     In a major federal intrusion into long-settled, clear, and fair California state law, Obama and the democratically-controlled Congress passed the beneficently-titled “Protecting Tenants At Foreclosure Act” signed into law by President Obama on May 20, 2009.  As with many of the grandiosely named federal laws, this one too has a truth in labeling problem. 

     The Act doesn’t “protect” tenants in California so much as it delays the rehabilitation of foreclosed properties and the offer of those properties to new families at discounted prices, increases the cost and uncertainty of real estate investment in tenant-occupied properties in California, and increases the amount of  deficiencies to be born by the lender in foreclosure since new investors price into their bids the inevitable delay and uncertainty that Obama’s law creates.  More troubling, the Obama law has given rise to tenant scams wherein tenants seek to extort huge sums of money from the new investor in exchange for leaving.     

     How has the Obama law created such uncertainty and havoc? 

     It’s very simple.  Recall that under pre-Obama state law, the junior lease held by the tenant was extinguished by the foreclosure sale.  In nearly all foreclosure cases, the tenant’s lease was junior to the foreclosed deed of trust because it either came after that deed of trust or because the lease contained a subordination clause.  Thus, the new investor bidding at foreclosure could do so knowing that he would receive absolutely clear title to the property and that any tenant residing there could be evicted on either a 3-day or 30-day notice (later increased to 60 days), depending upon whether the tenant was the prior owner. 

     The critical change to California legal prerogatives that Mr. Obama’s federal law made is that now new investors purchase at foreclosure “subject to” any existing term lease.  In other words, the tenant’s leasehold is no longer wiped out at the foreclosure sale.  If the lease is month-to-month, the new owner must give the tenant a 90-day notice, a period thirty days greater than what California state law currently provides.  

     From a policy standpoint, this hastily prepared law makes little sense.  The real estate market won’t recover until it first hits bottom.  It is the real estate investor, the “flipper”, who will determine the bottom of the real estate market.  For the benefit of all homeowners, the law should be making the process easy for flippers to turn these foreclosed properties around.  Instead, the federal government has chosen to make the process for investors less certain, more costly, and more time consuming.  Additionally, the Obama law was an unnecessary incursion into state law since California’s 60-day notice statute already adequately protected the rights of tenants.

     As if waiting 90 days-an eternity in real estate time-to terminate a tenancy weren’t bad enough, the law gets worse.  The Obama law also permits term-lease tenants to stay for the duration of their term, even where the remaining term exceeds 90 days.  The upshot?  A real estate investor in a tenant-occupied property in California has no idea going in how long it will take to offer to the market a vacant property. 

     But don’t worry investors, our president had your concerns in mind when he signed the law.   In a gesture of presidential even-handedness, Mr. Obama limited the scope of the law to only “bona fide tenancies” and “bona fide leases”.  Under the law, a bona fide tenant is one who a)  is not the prior owner or the child, spouse, or parent of the prior owner,  b) the lease was the result of an arms length transaction, and  c) the lease requires rent “not substantially less than fair market rent”.  The law fails to define “not substantially less than fair market rent.”      

     For the tenant to stay the duration of his term lease, the lease must also have been signed “before the notice of foreclosure”.  The Obama law does not define what is meant by “before the notice of foreclosure.”  Does that term mean before the tenant’s or the owner’s actual notice of . . .  what?  Default?  Notice of Sale?  What about the cases where the foreclosure sale was postponed?  Is the time of “notice” the date of the original sale or the postponed date?  Is the prior owner’s power to lease tied to his right of redemption?  Since the law doesn’t specify, it is virtually impossible for the new owner to know whether the tenant signed his term lease “before notice of the foreclosure” or afterwards. 

     In order for the new owner to learn whether the Obama law requires a 90-day notice or permits the tenant to stay for the balance of a term lease, the investor will have to sleuth out facts about the lease and tenancy, all of which will have to be voluntarily disclosed by the tenant.   For example, the new owner will have to learn who the tenant is and whether the tenant is related to the prior owner.  The new owner must obtain the tenant’s lease so that he can determine at what point during the foreclosure process the lease was entered into, whether the rent is “not substantially below fair market rent”, and, most importantly, what term remains on the lease.  The foregoing facts were irrelevant under state law but are now central issues due to the Obama federal law. 

     In practical terms, what is the problem?  Where President Obama and his fellow utopians saw an opportunity for reform, tenants saw an opportunity for profit.  Tenants and foreclosed property owners (particularly when the tenant and prior owner had a pre-existing personal relationship) have colluded to enter into long term leases near the time of foreclosure thus tying the property up for the new owner.  When the new owner comes on the scene, the tenant then demands an exorbitant amount of money in order to move. 

     The Obama law’s failure to define “before notice of the foreclosure” guarantees that the issue of whether the term lease is valid, i.e. whether it was entered into before or after “notice of the foreclosure”, will have to be litigated.  The Obama law makes this scam possible because it circumvents California state law that would have wiped out the junior lease at foreclosure.

     It didn’t take tenant lawyers long to get into the act.  Now, when a tenant-occupied property goes to foreclosure, the tenant is inundated with solicitations from lawyers promising the tenant months of free rent and financial windfall.  These solicitations advise the tenants not to cooperate with the new owner, not to identify themselves, not to give the new owner a copy of the lease, not to say how long they have lived there.  In short, the tenants are being told not to give any information to the new owner, regardless of the new owner’s legal right to the information.  The tenants are also advised against complying with the new owner’s statutory rights to enter the premises or cooperating in the new owner’s efforts to renovate and market the property.

     What are the solutions to the problems created by the Obama law?  First, try to work with the tenant.  Speak to the tenant and try to learn his name and the names of all people living at the property.  Try to obtain a copy of the lease.  Attempt to work out a cash-for-keys deal or, if your business model calls for the tenant to stay, try to close a new lease.  This process may take a lot of telephone calls and trips to the property. Second, make clear to the tenant that, if you have to hire a lawyer, all deals are off and the lawyer will do all that he must to safeguard the new owner’s rights.  Third, if you have a steadfastly uncooperative tenant, your only option is to obtain legal help. 

     I have a system in place to deal with uncooperative tenants that begins with telephone calls and correspondence and continues all the way through multiple lawsuits designed to give the tenant incentive to cooperate and to move-out, nearly always before the 90-day Obama period and commonly in as little as 30 days. 

     The costs and attorney’s fees associated with this system are often less than what you would pay the tenant to move, less than the monthly carrying charges on many properties, and a fraction of the discount that you factored into your bid to acquire the property because it was tenant-occupied.  If you would like to learn more, please contact me so that we can explore your options.  Please remember:  You do not have to tolerate an uncooperative or scamming tenant.

San Diego Landlords: Beware Of Eviction Control When Trying To End A Month-To-Month Tenancy

Mercifully, San Diego does not have rent control.  Unfortunately, San Diego does have its close relative-the unwelcome mother-in-law of rent control-better known as eviction control or “for cause” eviction.  

San Diego’s eviction control ordinance substantially impacts a landlord’s right to end a month-to-month tenancy.  Moreover, the ordinance can be a trap for the unwary landlord unfamiliar with its mandatory notice provisions.  A notice terminating a month-to-month tenancy that does not comply with the eviction control ordinance could cause the inexperienced landlord to lose his eviction case at trial and have to start the eviction process all over again. 

What is San Diego’s eviction control ordinance? The ordinance applies to every tenancy of two years or greater duration.  When a tenant has lived in your rental property for two years or more, you may only terminate his month-to-month tenancy, or refuse to renew his lease, for certain specified reasons.  On the face of it, the authorized reasons in the ordinance don’t seem unreasonable.  As examples, a landlord may only terminate the tenancy for things such as nonpayment of rent, breach of lease, tenant use of the property for an illegal purpose, or landlord withdrawal of the premises from the rental market just to name a few.  

The ordinance’s restrictions wouldn’t appear too onerous to most landlords since a landlord’s typical reasons for terminating a tenancy match those permitted by the eviction control ordinance.  However, the ordinance’s mandates do not end there.   The ordinance further requires that the landlord serve on the tenant a notice setting out the reason or reasons for terminating the tenancy at the same time that the landlord serves the 30-day notice, 60-day notice, or 3-day notice, whichever the case requires.  

In other words, to comply with San Diego’s eviction control ordinance, you must first have a permitted basis for terminating the tenancy.  In addition, you must serve a separate notice on the tenant setting forth that permitted reason at the same time that you serve the notice terminating the tenancy.  Thus, a tenant who is protected by the eviction control law should get two notices, one terminating the tenancy (the 3-day, 30-day, or 60-day depending upon the case) plus another notice setting forth the reason authorized by the eviction control ordinance.  

Additionally, to be valid, both notices must be served according to law, i.e. they must be personally served on the tenant or served through a valid substitute service or post and mail service.  I can’t tell you how many landlords I have seen in my practice make the mistake of not complying with the eviction control ordinance.  In fact, nearly every client I see who has tried to terminate a month-to-month tenancy with a 30-day or 60-day notice either didn’t comply with the ordinance or didn’t serve it right.  

The consequences for the landlord to not terminating the tenancy right can be dire.  At a minimum, the landlord will suffer the lost time and inconvenience of having to serve a new notice.  If the landlord has sued on a bad notice, the consequences can be worse.  The tenant will win the eviction case and the landlord will have to start the entire process over again, thus losing more time, rent, plus costs and attorney’s fees.  If you want to end a month-to-month tenancy, or not renew a tenancy, on some ground other than non-payment of rent, you should consult a lawyer to make sure that you comply with San Diego’s eviction control ordinance.

San Diego Landlords: Should You Do Your Own 3-Day Notice To Pay Rent or Quit?

To do or not to do; that is the question.   

My apologies for the slight revision of Hamlet but then again Shakespeare never had to deal with California eviction law.  California landlords, on the other hand, do.  And every landlord in California has had to confront the issue:  “Should I fill out the 3-Day Notice to Pay Rent or Quit and serve it myself or should I have a professional do it?”  

Considering the vital importance of the 3-day notice to the eviction case that follows, the answer is not as simple as it seems.  To California landlords out there struggling with this question, this article is written for you.  I hope to provide you with the information that you need to decide whether to handle the 3-day notice yourself or have your lawyer and his process server take care of it.  

First, a brief explanation of what a 3-Day Notice to Pay Rent or Quit is.  The 3-day notice is the first step in the eviction process based upon the tenant’s failure to pay rent.  The notice is served on the tenant.  The tenant then has three days to pay the rent in full.  If the tenant pays the rent within the three days, the landlord must accept it, the default is cured, and the tenancy goes on.  If the tenant fails to pay the rent within the three days, the tenant is in default and the landlord may file an eviction lawsuit (called an unlawful detainer in California) on day four.  

After the three-day notice period runs, the tenant is no longer permitted to pay the rent and the landlord need not accept it.  The landlord may accept rent if he wants to keep the tenant but he does not have to.  If the landlord accepts rent after the three day period expires, however, the landlord waives his right to declare a default and cannot evict the tenant until a future non-payment of rent occurs.    

In other words, if a problem tenant fails to pay rent and you want to get rid of him, don’t accept any rent after expiration of the three-day notice.  If you do accept the rent, you’ll waive the default and won’t be able to evict until the tenant fails to pay rent again, at which time you’ll have to serve a new 3-day notice.  

When deciding whether to do the 3-day notice yourself, remember the 4 “C’s”:  Content, Communicate, Consequences, and Cost.  Regarding Content, the law mandates that certain information be included in the 3-day notice.  Many landlords rely upon pre-printed form 3-day notices.  The landlord then hand writes in the information particular to that tenant and gives the notice to the tenant.  These forms are usually legally sufficient.  Form 3-day notices sold by a company called nolo or forms available through the San Diego Apartment Owners’ Association are kept up to date and comply with all of California’s legal requirements.  Most experienced landlords use the forms without a problem.  

Even with pre-printed forms, however, I have seen landlords make two types of mistakes.  First, I have seen landlords use out-of-date forms.  If you use a form that does not reflect current legal requirements, you could lose at trial and suffer the Consequences described below.  Thus, make sure that the form you use is the most current version.  Second, I have seen landlords fill out the form incorrectly or incompletely.  If you use a form, make sure that you’ve filled in all of it.  If you’re not sure about a part of the form, don’t guess.  Hire a professional to take care of it and teach you how to complete the form for future use.  Don’t get caught with an incorrectly filled out notice or it could result in you losing your eviction case at trial.    

The next “C” is Communicate.  Specifically, the law requires that the notice be given to the tenant in a certain manner.  If you don’t serve the notice correctly, you could lose at trial later.  The first method of serving the notice that the law permits is personal service.  By personal service, I mean that the landlord simply hands a copy of the notice to the tenant.  If you personally serve the tenant, make a note of the date and time so that your lawyer can prepare the Proof of Service later.  

The second method for serving a 3-day notice is called “substitute service”.  Substitute service means that the landlord gives the notice to someone at the premises who is over the age of 18 and then mails a copy to the tenant at the property address.  Substituted service becomes necessary when you go to your rental property to serve the notice and the tenant isn’t there but another adult is, such as an adult child, spouse, friend, or parent.  When that occurs, the law allows the landlord to give the notice to the other adult and then mail a copy to the tenant.  

In such a case, be sure that you mail.  I’ve seen landlords make the mistake of giving a proper notice to an adult at the premises but the service is nonetheless defective because the landlord forgot to mail a copy to the tenant.  Also, make a note of when (date and time) that you substitute served the tenant, the name of the person who you gave the notice to, and the date that you mailed the notice.  

The third legally authorized method of service is called “nail and mail” or “post and mail.”  Suppose you go to the property and nobody is there?  How do you serve the notice then?  Easy.  Post a copy of the notice in a conspicuous place on the property (usually on the door) and mail a copy to the tenant.  Make a note of when you posted and mailed and you’re set.  

Remember one extremely important fact:  You must serve a notice on each tenant and every known occupant.  This is also a common mistake that I’ve seen in my practice.  A landlord will give one notice to the tenant who answers the door but doesn’t serve the two roommates. In such a case, you could lose later at trial against the two roommates since they were not served with notice.  

The third “C” is Consequences.  By that I mean, what are the consequences to the landlord of serving a 3-day notice that is defective in content or incorrectly served.  The answer is that you are in trouble if the tenant contests the case and shows up at trial.  If the tenant doesn’t contest the case or doesn’t show up at trial, i.e. you win by default judgment, then you got away with your mistake and you’ll win anyway. 

But that is the risk that you take if your notice is bad, either in content or manner of service.  You’ll be down to banking on the tenant not answering your lawsuit or not showing up to trial.  If the tenant contests the case and shows up ready for trial, either himself or through a lawyer, you’re sunk.  

So let’s assume for a moment the worse case scenario:  Your notice is no good.  You’re in the courtroom waiting for trial and nearby is Mr. Tenant with his lawyer ready to slice your case to ribbons.  How bad will the damage be?  Pretty bad.  When the defect in the notice (or how it was served) is pointed out to the court, the court will dismiss your case and tell you to start over. You read that right.  You will have to start the entire process over, beginning with serving a new (and correct) notice and then a new lawsuit.  All of the time that you wasted going to trial in the first case (in San Diego that would be about five weeks) will amount to rent-free living for your tenant.  

It gets worse.  Since the court dismissed your case, the tenant, under California law, would be the prevailing party.  Therefore, you will have to pay the tenant’s costs and his attorney’s fees if your written lease has an attorney’s fees provision which it almost certainly does.  Thus, if you go to trial and lose, you will have to suffer the tenant living rent-free at your property for an additional five weeks or more and you will have to pay the tenant’s litigation costs and his attorney’s fees in addition to your own.  To put it more concisely, get the notice right.  

The final “C” is Cost.  What will it cost you to have a lawyer prepare, and a professional process server serve, the 3-day notice.  In San Diego, the attorney’s charge to prepare a 3-day notice usually runs between $70.00 and $90.00.  I charge $70.00.  The process server will typically charge anywhere from $35.00-$45.00 per tenant to serve the notice.  Thus, if two tenants reside at your property, you’re looking at a total charge of about $150.00.  

I always recommend to clients that they use a registered process server for two reasons.  First, sometimes the tenant will deny at trial that he received the notice.  In that case, I can call the process server to testify. Whenever I’ve had to call the process server at trial, my client has always won.  In my experience, the court gives the process server’s testimony considerable weight because the process server is viewed as a neutral, impartial, objective witness who is far more credible than the freeloading tenant.  The second reason that I recommend a process server is simple.  When a process server delivers the notice, I know that the service will be done right.  

I’ve provided the above article to help landlords in California decide whether they should do it themselves when it comes to the 3-Day Notice to Pay Rent or Quit or have a lawyer and process server do it.  I hope that the article was informative and helps California landlords make the decision that works out best for them.