What rights does a tenant have after a foreclosure of the premises?
Some answers were provided in the recent unanimous California Supreme Court decision in Dr. Leevill, LLC v. Westlake Health Care Center, a case that originated in Ventura County.
The Court decided a procedural question related to the timing of the notice that must precede an unlawful detainer action, where the action is not brought by a landlord but rather by a new owner that has acquired title to the property under a power of sale contained in a deed of trust.
The Court concluded that the new owner must perfect title before serving the three-day written notice to quit, and the perfection of title, which includes recording the trustee's deed, is necessary before the new owner serves a three-day written notice to quit on the possessor of the property (i.e., tenant).
Westlake Village Property, L.P. (Westlake Village) owned property in Thousand Oaks that it leased in 2002 to defendant Westlake Health Care Center (Westlake Health) so the latter could operate a skilled nursing facility on the property.
Six years later, Westlake Village obtained a bank loan, executing a promissory note and a deed of trust on the property (the latter to secure the promissory note). After Westlake Village defaulted on the loan, the bank sold the promissory note and the deed of trust to Dr. Leevil, LLC (Dr. Leevil), the plaintiff in the action. Dr. Leevil then instituted a nonjudicial foreclosure and bought the property at a trustee's sale.
The next day, Dr. Leevil served a three-day written notice to quit upon the property's tenant, Westlake Health, and five days after that, Dr. Leevil recorded title to the property. Westlake Health did not vacate the property, and Dr. Leevil initiated the unlawful detainer (UD) action 40 days after service of the written notice to quit.
Proceedings in the trial court ended in a judgment against Westlake Health, based on stipulated facts, with Westlake Health preserving its right to appeal various legal rulings of the court. On appeal, the Court of Appeal affirmed.
Among other things, the Court of Appeal concluded that, under Code of Civil Procedure section 1161a, subdivision (b) (section 1161a(b)), an owner that acquires title to property under a power of sale contained in a deed of trust does notneed to perfect title before it serves a three-day written notice to quit on the tenant. Instead, the Court of Appeal concluded that the new owner may serve the notice to quit immediately after acquiring ownership, after which it may perfect title, so long as title is perfected before the new owner files a UD action.
In reaching that conclusion, the Court of Appeal expressly disagreed with the Appellate Division of the San Diego County Superior Court, which addressed the same issue in U.S. Financial, L.P. v. McLitus. Because Dr. Leevil perfected title before initiating the UD action, although not before serving the notice to quit, the Court of Appeal concluded that the action complied with section 1161a(b).
Section 1161a(b) authorizes a summary proceeding to remove the possessor of real property in specified circumstances. It is structured to enumerate five cases in which its substantive provision applies. Specifically, section 1161a(b) opens with the phrase "[i]n any of the following cases," then it sets forth its substantive provision (authorizing an unlawful detainer action to remove 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), and then it enumerates five separate situations in which its substantive provision comes into play.
Thus, the substantive provision of section 1161a(b) has no operative effect unless one of the five enumerated situations (what the statute calls "cases") is present. Put another way, section 1161a(b) contemplates that a property owner seeking to avail itself of the statute's remedy will begin by looking at the five enumerated "cases," considering whether the conditions of any of them are satisfied. Only when one of the cases is satisfied may the substantive provision of the statute be invoked.
Section 1161a(b)(3) is one of those "cases," and it is the only provision on which Dr. Leevil relied. Therefore, Dr. Leevil was not entitled to the remedy provided by the substantive provision of section 1161a(b) unless it first satisfied the conditions of section 1161a(b)(3).
Section 1161a(b)(3) describes the following case: Where the property (A) has been sold in accordance with Section 2924 of the Civil Code, (B) under a power of sale contained in a deed of trust executed by the holdover possessor, or a person under whom such person claims, and (C) the title under the sale has been duly perfected.
There are two things to notice about the language of section 1161a(b)(3). First, the provision is in the past tense ("has been sold" and "has been duly perfected"), suggesting completion.
Second, the sale of the property in question is only one of three distinct conditions set forth in section 1161a(b)(3), and the use of the conjunctive word "and" to connect the three conditions can only mean that all three conditions must be satisfied. In other words, all three conditions of section 1161a(b)(3), including perfection of title, were prerequisites to Dr. Leevil having any right to the remedy section 1161a(b) affords.
In this context, perfection of title requires that the instrument of conveyance (the trustee's deed) be recorded pursuant to Government Code section 27280. Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt, which includes good record title, but is not limited to good record title, as between the parties to the transaction.
The court in a UD action has jurisdiction to determine the validity of such defenses. Because one of the conditions set forth in section 1161a(b)(3) is that title under the sale has been duly perfected, Dr. Leevil was not entitled to a section 1161a(b) remedy until it first perfected title, which required, among other things, that the instrument of sale (the trustee's deed) be recorded.
The most natural reading of the statute required Dr. Leevil to perfect title before invoking section 1161a(b) but it is undisputed that Dr. Leevil served the three-day written notice to quit before it perfected title to the property. Dr. Leevil, therefore, took the first step in the removal process authorized by section 1161a(b) before satisfying all of the prerequisite conditions.
The UD statutes are to be strictly construed and that relief not statutorily authorized may not be given due to the summary nature of the proceedings. The remedy of unlawful detainer is a summary proceeding to determine the right to possession of real property. Since it is purely statutory in nature, it is essential that a party seeking the remedy bring himself clearly within the statute.
Because Dr. Leevil served the three-day notice to quit before it perfected title, it did not bring itself within the scope of section 1161a(b), as that provision is most naturally read, before taking the first step in the removal process that the statute authorizes. Its notice to quit was, therefore, premature and void, and its UD action, improper.
A bidder at a trustee's sale might present a check for the purchase price of the property, but whether the bank account on which the check is drawn contains sufficient funds to cover the amount of the check remains to be seen. Therefore, the trustee is authorized to withhold the deed until the check clears. But withholding the deed prevents the purchaser from recording the sale and perfecting its title. The subdivision, therefore, affords a 15-day period during which the deed may be recorded and the sale deemed perfected as of the original sale date. That way, the original sale date may be memorialized even if the deed is withheld pending confirmation of the purchaser's payment of the purchase price.
Moreover, the apparent policy aims of the statute support an inference that the Legislature intended that a new owner of real property should perfect title before serving a three-day written notice to quit on the possessor of the property. In cases where the possessor of the property is a tenant of the former owner, not the former owner itself, the tenant may not know whether the entity serving the notice to quit is a bona fide owner. Thus, section 1161a(b)'s requirement that the new owner perfect title before serving a notice to quit protects the interests of such a tenant.
LESSONS:
1. In California, the general purpose of the recording statutes is to permit the recordation of any instrument that affects the title to or possession of real property, and to penalize the person who fails to take advantage of recording.
2. The foreclosure purchaser (or successor in interest) of a deed of trust must perfect title before serving the three-day written notice to quit required by Code of Civil Procedure section 1161a(b) to support a UD action.
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