Termination for Rent Nonpayment after Foreclosure: 90 Days’ Notice? (California Landlords' Law Book: Rights & Responsibilities)

The Protecting Tenants At Foreclosure Act, signed in May 2009 (PFTA), gave tenants important rights in post-foreclosure evictions. In brief, month-to-month tenants are entitled to 90 days’ notice if a buyer at the foreclosure sale intends to terminate a month-to-month tenancy; and tenants with leases can remain until the lease ends (however, they can be terminated with 90 days’ notice if an individual buyer intends to live in the property).

For more details on the PFTA, see Renters in Foreclosure: What Are Their Rights?

Relatively few appellate opinions have come along to interpret the PFTA—but we may see some appellate action following a March 2012 trial court opinion from the Los Angeles Superior Court in California. In what we believe is a misguided opinion, the judge ruled that even though the PTFA requires the new owner to honor a pre-foreclosure lease, thus allowing a tenant to remain in rented residential property following a foreclosure—and requires that tenant to continue to pay rent to the new owner as it comes due—the new owner can't use a 3-day notice to pay rent or quit. Instead, it has to use a 90-day termination notice. In essence, this bizarre ruling holds that the new owner has a right to receive rent but cannot enforce it because the 3-day remedy isn't mentioned in the PTFA. (PNMAC Mortgage v. Stanko, Los Angeles County Superior Court Limited Jurisdiction, Case No. 11U04495, March 7, 2012.)

The opinion correctly states, "This Court agrees that even after foreclosure there is an ongoing duty of the tenant to pay the rent in order for him/her to invoke the PTFA protections for the remaining term of the lease agreement. This Court also agrees that the tenant's failure to pay rent during the remaining lease period relieves the landlord of his/her obligation to honor the remaining balance and provides the foreclosing party with the remedy of eviction under CCP § 1161, which requires only a 3 day notice." But then it goes on to take away the new owner's tool to enforce that, essentially allowing the tenant to stay in the property rent free for up to 90 days after foreclosure. The court’s remedy for the landlord who must allow 90 days of unpaid rent to accrue is to point out that the landlord can sue for that rent at the eviction proceeding—cold comfort if the tenant skips before the case is heard, or is judgment proof.

We strongly disagree with this judge’s reasoning. The PTFA is a federal law applicable to all states and territories, and shouldn't be expected to have specified or referred to pay-rent-or-quit laws that differ in each state. It's enough that the PTFA keeps residential tenant leases intact past foreclosure, and implies that tenants have a duty to keep paying rent if they want to stay, and that the landlord can enforce that. The 90-day notice referred to in the PTFA is an unconditional notice to vacate, not intended as a 90-day pay-or-quit notice. Nothing in the law suggests an intention to override pay-rent-or-quit procedures established by the states.

This opinion is not citable as precedent (other lawyers can’t use it as authority in their cases), and it does not bind any other court, even other Los Angeles superior courts. We expect that this ruling, if appealed, will be reversed, and that other judges will not rule this way in other cases. In the meantime, if you purchased residential property subject to a lease at a foreclosure and the tenant refuses to pay rent to you, you may wish to contact an attorney to handle the eviction.