Successor in Interest After Foreclosure Can Evict Tenant With 90 Day Notice

The general rule is that foreclosure of a senior encumbrance terminates subordinate (i.e., filed later in time) liens, including leases.  An exception to the general rule is contained in California Code of Civil Procedure section 1161b.

Section 1161b, subsection (b)(1), provides that tenants in possession of a rental premises under a fixed-term residential lease can remain until the end of the lease term, and all of their rights and obligations under the lease survive the foreclosure sale.

However, it also provides that such tenants can be evicted if they are served with a 90 day written notice to quit by the purchaser at the foreclosure sale, or its successor in interest, if the purchaser or successor intend to occupy the premises as a primary residence.

The question is: Who is included in the term "successor in interest"?  That term is not defined by section 1161b.  There can be differing interpretations because "successor in interest" is not qualified by terms like "immediate", "ultimate", or "eventual".

Recognizing that the legislature did not specifically limit the exception under section 1161b to one specific successor in the chain of title, the court in the recent case of Epps v. Lindsey decided that the term "successor in interest" is not limited to the purchaser's immediate successor in interest, but to "the" ultimate or most significant successor in interest who then-owns the property intending to reside there, and who serves the 90 day notice to quit. 

In Epps v. Lindsey,  Bank of America foreclosed on its loan, and the parents of Joshua Epps purchased the property for Epps who lacked the cash to make a bid himself.  A month later, the parents transferred the property to Epps who intended to use it as his primary residence.

After Epps served the tenant in the property with a 90 day notice to quit, the tenant refused to vacate the property, and an unlawful detainer action was filed by Epps.  The tenant contended he was able to remain in the property for the duration of the lease.  Epps contended he was a successor in interest to the foreclosing Bank of America, even if the property was owned by his parents in the interim.

In ruling that Epps was a "successor in interest" under section 1161b, the Court saw no problem with allowing a successor in interest that is two steps removed from the foreclosure sale from exercising the same rights afforded under section 1161b to the "purchaser" or the purchaser's immediate successor. 

The Court determined that section 1161b was enacted in-part to address the concern that unsuspecting tenants were being evicted despite paying their rent.  The statute's exception for a 90 day notice to quit suggests the legislature intended to give the post-foreclosure owner, who doubles as a would-be resident, preference over a non-defaulting tenant whose interest would have otherwise been extinguished by the foreclosure sale.   

Caveat:  To get the benefit of this statute, none of the owners after the foreclosure sale can accept any rent tendered by the tenant because acceptance of the rent would confirm the owner's consent to the written lease that still had time remaining before it expired.