DennisBeaverJune 11, 2011 (Original publish date) • By Dennis Beaver

When home prices began their fall through the floor, it wasn’t only homeowners who faced the sudden reality that their house was worth far less than what they paid for it.

Many landlords did as well, but for some of them, the housing crisis turned their rental property into a jackpot-paying slot machine. Some had just purchased a rental, while many already owned their income property for several years. In almost all situations, everyone expected the tenant’s rent to cover the mortgage. Of course, there were oodles of tax advantages as well.

But owning a rental house has a little something “extra” for a number of “creative” landlords, as horribly weak California law virtually guarantees big payoffs to those who are morally and ethically challenged. It’s like taking candy from a baby – just as easy, and just as sad.

Simply collect the rent money from your tenant, and put it in your pocket. Forget about making the mortgage payment. While common sense tells you this is obviously theft and can’t be legal, it is a crime only in very limited instances.

“I don’t care about the law”

In January, Cesar “began receiving disturbing letters and strange notices were taped to the front door of the house we were renting. Combined with annoying phone calls from bill collectors representing a loan servicing company, it was clear that the owner was taking our rent money but not paying the mortgage. We also learned that he has several properties in foreclosure,” the Navy lieutenant explained.

But when he gave us the landlord’s name, it felt as if someone had pushed the rewind button. We ran into this creep a few years ago, trying to get a security deposit returned to another naval family in Lemoore. He deserves Academy Awards in two categories: Greed and Dishonesty.

When I asked why he: 1) Preferred to rent to naval personnel, and 2) Refused to follow the law and return deposits, his answer floored me.

“Naval personnel are responsible, pay the rent on time, and since they are reassigned often, it is difficult for them to sue me for the deposit. I don’t care a bit about the law on deposits,” he said in a tone of voice, which, if used on the wrong person, could easily send him to the E.R one day.

While in the past this landlord was content with cheating tenants out of their cleaning deposits, he had now graduated to defrauding the bank out of his mortgage payments.

Should we stop paying rent?

So, what do you do when it is clear that your landlord isn’t paying the mortgage and you have several months remaining on the lease? “The landlord has our $4,000 security deposit, and we do not want to move, with all of those additional expenses. I know this guy is in love with money. Do you have any suggestions? Can we just stop paying rent?” the lieutenant asked.

We did, indeed have a suggestion which would likely be acceptable to the crooked landlord and keep the family in their rented home. But first, it was important for Cesar to understand his landlord’s rights, even when behind in payments.

“Even though he is not making the mortgage payments, it is still his house until lost through a sale, generally, or if he is able to sign it back over to the bank. In theory, until actual foreclosure and sale of the house, he could evict a tenant who fails to pay rent, even if his own loan is in default, as crazy as this sounds. Since he loves money and knows that it will take months before actually losing the house, this puts you in a very good position,” we explained.

“In our experience, money-hungry landlords just like this guy want that rent to keep on coming. They also realize that if their tenant stops paying and they try to evict or sue for unpaid rent, today there are some judges who aren’t rewarding this behavior.

“So, here is what you do: First, realistically determine what it would cost you to move and toss in the security deposit. Then, call the landlord, and politely explain that it is clear he isn’t making the mortgage payments, that even if you stopped paying rent and he sued you, there is a chance that a judge would not find in his favor.

“Tell him that you realize the house will eventually be lost, but you still want to remain living there as long as possible, as it would cost X dollars in moving expenses. Tell him that you have a win-win proposal.”

We’ll have the details of that proposal in our next story.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.