Rent Skimming under California Law

What is “rent skimming” and is it permissible under California law? In the Civil Code, Division 2, Part 2, Title 6, it covers rent skimming that can occur with real property. Section 890 defines the term to mean “using revenue received from the rental of a parcel of residential real property at any time during the first year period after acquiring that property without first applying the revenue or an equivalent amount to the payments due on all mortgages and deeds of trust encumbering that property.” Rent skimming is further defined in this code section, along with the terms “multiple acts of rent skimming” and “person.”

Section 891 states that a seller of an interest in residential real property who received a promissory note or other evidence of indebtedness for all or a portion of its purchase price secured by a lien on the property may bring an action against any person who has engaged in rent skimming with respect to that property.

In addition, a seller who prevails in the action recovers all actual damages and reasonable attorney’s fees and costs. The court may award any appropriate equitable relief as well as exemplary damages in certain circumstances.

A seller of an interest in residential real property who reacquires the interest from a person who has engaged in rent skimming, or a law enforcement agency, may request the court for an order declaring that the reacquired interest is not encumbered by any lien that is or has the effect of a judgment lien against the person who engaged in rent skimming if the lien is not related to any improvement of the property and does not represent security for loan proceeds made by a bona fide lien holder without knowledge of facts constituting a violation of this title. 

A civil motion or application must be made with at least 30 days’ advance written notice to all persons who may be affected by the order, including lienholders, and be granted unless the interests of justice would not be served by such an order. A mortgagee or beneficiary under a deed of trust encumbering residential real property may bring an action against a person who has engaged in rent skimming with respect to that property as one of multiple acts of rent skimming. If the mortgagee or beneficiary prevails in the action, they can recover actual damages to the extent of the amount of the rent collected on the encumbered property and attorney’s fees and costs. The court also may order any appropriate equitable relief and may award exemplary damages.

A tenant of residential real property may bring an action against a person who has engaged in rent skimming with respect to that property for the recovery of actual damages, including any security, and moving expenses if the property is sold at a foreclosure sale and the tenant was required to move. A prevailing plaintiff in such an action is awarded reasonable attorney’s fees and costs. The court also may award exemplary damages.

Note that the rights and remedies provided in this section are in addition to any other rights and remedies provided by law. Moreover, rent skimming is unlawful, and any waiver of the provisions of this section are void and unenforceable as contrary to public policy.

Section 892 provides that any person who engages in multiple acts of rent skimming is subject to criminal prosecution. Each act of rent skimming comprising the multiple acts of rent skimming are to be separately alleged. A person found guilty of five acts is punished by imprisonment for not more than one year, by a fine of not more than $10,000, or by both.

A prosecution for a violation of this section must be commenced within three years after the date of the acquisition of the last parcel of property that was the subject of the conduct for which the defendant is prosecuted. The penalties under this section are in addition to any other remedies or penalties provided by law for the conduct proscribed by this section.

Section 893 specifies that it is an affirmative defense for a natural person who is a defendant in a civil action, or a criminal action, if all three of the specified circumstances occurred. Section 894 provides a severability clause.