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Entries in unlawful detainer (2)

Friday
Mar102017

Initiating Unlawful Detainer Actions: Perfection Not Required

Business LitigationReal Estate Litigation Attorney

by Nicholas Kanter
818-907-3289

 

In November 2016 the California Supreme Court ordered that a decision from the appellate division of the San Diego Superior Court in U.S. Financial, L.P. v. Michael McLitus (“McLitus”) be published.   

McLitus held that an owner that acquires a property at a non-judicial foreclosure sale is required to perfect title before serving a Three Day Notice to Quit, the first step in initiating an unlawful detainer action under Code of Civil Procedure §1161a. The court held if the Notice to Quit was served before title was perfected, the notice would be defective and could not support an unlawful detainer action.

Commercial Tenant Eviction

Based on the decision in McLitus, the new owner of a property purchased at foreclosure would have to wait to receive the Trustee’s Deed Upon Sale from the foreclosure trustee, and then until the Trustee’s Deed is recorded by the county recorder, before serving a Three Day Notice to Quit. Thus, McLitus had the potential effect of delaying a new owner from obtaining possession to an occupied property.

McLitus Decision Short-Lived

Four months after the McLitus decision was ordered published, the Second Appellate District of the Court of Appeal issued an opinion squarely rejecting the McLitus holding.   

In Dr. Leevil, LLC v. Westlake Health Care Center (“Westlake”), Westlake Village Property, which owned Westlake Health Care Center (WHCC), defaulted on a loan and filed for bankruptcy. The bank sold the loan to Leevil who instituted a non-judicial foreclosure, and subsequently purchased the health care center at a trustee’s sale. Leevil then served a Notice to Quit on WHCC. When WHCC refused to vacate the property, Leevil filed an unlawful detainer action under §1161a. Leevil ultimately obtained possession to the property.

On appeal, WHCC relied on the McLitus decision to argue the Notice to Quit was invalid because Leevil did not perfect title before serving the Notice. 

The Court of Appeal rejected WHCC’s argument and affirmed the trial court’s decision. The Court found that §1161a does not require that title be perfected prior to serving a Notice to Quit. Rather, this Section only requires that title be perfected before a party may be removed from the property following a foreclosure sale.

Code Civ. Proc. Section 1161a states, in pertinent part:

a person who holds over and continues in possession of . . . real property after a three-day written notice to quit the property has been served . . . may be removed therefrom . . . [w]here the property has been sold in accordance with [s]ection 2924 of the Civil Code . . . and the title under the sale has been duly perfected.

Nothing in Section 1161a requires that title be perfected before a Three Day Notice to Quit is served.  Further, the Court of Appeal held that “[n]one of the cases cited in McLitus support the requirement that title be perfected before service of the notice to quit.”

Future of Unlawful Detainer Suits

Because the Westlake decision is binding on lower courts, and decisions from the Appellate Division of the Superior Court are not, trial courts should be guided by Westlake.  Accordingly, as it stands now, purchasers at foreclosure do not have to wait until title is perfected before serving a Three Day Notice to Quit.  

Nicholas Kanter is a Real Estate and Business Litigation attorney. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Jan302014

Protecting Tenants at Foreclosure Act: California Court of Appeal

Business LitigationSan Fernando Valley Business Litigation Lawyer

 

Nicholas Kanter
818.907.3289

Five years after the Protecting Tenants at Foreclosure Act was passed, the California Court of Appeal recently published its first opinion interpreting the Act in depth.

The PTFA, a federal statute, was passed in 2009 as an effort to protect tenants from being quickly displaced from a rental property following a foreclosure sale. Prior to the PTFA, a foreclosure sale would generally eliminate a lease that was junior to the deed of trust for the subject property.  

As a result, the purchaser at a foreclosure sale was able to file an unlawful detainer lawsuit against tenants in a foreclosed property following the expiration of a Three Day Notice to Quit. The PTFA changed this.  

Under the PTFA, a purchaser at a foreclosure sale takes title to the property subject to the rights of a bona fide tenant residing in the property under a bona fide lease, with certain exceptions. 

For example, where the lease is terminable at will, or the purchaser intends to occupy the property as his/her primary residence, the tenancy can be terminated upon 90 days written notice to the tenant. However, if these exceptions do not apply, a foreclosure purchaser must generally honor the bona fide tenancy through the end of the lease.  

In Nativi v. Deutsche Bank Nat'l Trust Co., (Cal. Ct. App. Jan. 23, 2014), Deutsche Bank purchased a residential property at a foreclosure sale in August 2009. At the time of the sale, Rosario Nativi was renting a converted garage unit on the property pursuant to a lease that did not terminate until June 1, 2010. Following the sale, Nativi was displaced from the property and sued Deutsche Bank for a number of landlord-tenant causes of action, including wrongful eviction, breach of the covenant of quiet enjoyment, illegal entry of landlord and illegal lockout.  

Ultimately, the trial court granted a motion for summary judgment filed by Deutsche Bank finding the foreclosure sale extinguished the lease under California law, and therefore Deutsche Bank, as the immediate successor in interest in the property, did not step into the shoes of the landlord.  

The Court of Appeals reversed the trial court finding that under the PTFA, 

…a subordinate bona fide lease survives foreclosure for the remainder of the term by operation of the Act regardless of the state law to the contrary and, consequently, the bona fide tenants under that lease and the immediate successor in interest in the foreclosed property have a landlord-tenant relationship, although the lease may be terminated as provided in the Act. 

While the Court’s holding is not surprising in light of the PTFA’s language, it reinforces the importance of the foreclosure purchaser to take steps to determine if the purchased property is tenant occupied, and if so, the terms of the tenancy. Moreover, if a bona fide tenancy exists, based on the Court’s ruling, the purchaser becomes the tenant’s landlord and should act accordingly or risk claims by the tenant. 

Although the Nativi ruling focuses on the rights of bona fide tenants under the PTFA, it also touches an important but overlooked aspect of the Act.  

In particular, the PTFA does not explicitly address whether a bona fide tenant is required to pay rent to the new owner of the property, and if so, whether the new owner can terminate the tenancy for failure to pay rent without waiting 90 days. Nativi appears to answer this question in the affirmative.  

As quoted above, the Court held that “bona fide tenants…and the immediate successor in interest…have a landlord-tenant relationship…” In a landlord-tenant relationship, the tenant pays rent to the landlord.  Furthermore, the Court relied on administrative construction of the PTFA to support its ultimate findings.  One of the administrative guidelines relied upon was a release by the FDIC which stated: “For tenants under a lease who are current on their rental obligations, PTFA prohibits eviction prior to the end of their lease terms…”  (Emphasis added). 

This implies that tenants must be current on their lease to enjoy the protections of the PTFA.  A logical conclusion is thus, if a tenant is not current on his/her lease, the new owner may terminate the tenancy prior to 90 days for failure to pay rent.  

The lesson learned here is this: anyone purchasing a residential property at a foreclosure sale should take steps to ascertain the status of the occupants in the property. 

If tenants are occupying the property under a bona fide lease the purchaser should try to obtain a copy of the lease to determine the rights and obligations of both the tenant and the landlord (i.e., the purchaser) thereunder. Depending on the lease terms, the purchaser may be able to terminate the lease upon proper notice to the tenant, or may have to honor the lease until it expires. 

 

Nicholas Kanter is a Real Estate Litigation Attorney at our firm. Contact him via email: nkanter@lewitthackman.com.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

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