California foreclosures are usually nonjudicial, which means the process takes place without court supervision. After the foreclosure sale, the trustee records a "trustee's deed" in favor of the the high bidder from the auction. At that point, the high bidder officially becomes the new owner, as shown on the foreclosed property's title.
Those who buy a tenant-occupied foreclosed property often find that a tenant whose lease has been extinguished by the foreclosure won’t vacate the property. Before filing an unlawful detainer (eviction) lawsuit in court, the new owner has to serve the tenant a three-day written "notice to quit" (leave). The new owner may then file a lawsuit to evict the tenant.
But just how quickly can the new owner get the ball rolling to evict a tenant after a foreclosure? A recent California Supreme Court decision clarifies the timing requirements.
In the case of Dr. Leevil, LLC v. Westlake Health Care Center, 431 P.3d 151 (Cal. 2018), Westlake Village Property, L.P. (Westlake Village) owned property in Thousand Oaks, California, that it leased to Westlake Health Care Center (Westlake Health). Westlake Village took out a loan, which was secured by the property. Westlake Village later defaulted on the loan, and the bank sold the loan (the promissory note and deed of trust) to Dr. Leevil, LLC (Leevil), which then began a nonjudicial foreclosure. Leevil was the high bidder at the trustee’s sale and, the following day, served a three-day notice to quit on Westlake Health—five days before the trustee’s deed transferring the property to Leevil was recorded. Leevil filed an eviction lawsuit about a month later.
Westlake Health argued that the eviction action was invalid because Leevil served the notice to quit before the trustee’s deed was recorded. The California Court of Appeal rejected this argument, deeming the eviction lawful. Westlake Health then petitioned the California Supreme Court to review the matter.
The California Supreme Court reversed the Court of Appeal’s judgment and decided that Leevil had to perfect title (record the trustee’s deed) before serving the three-day written notice to quit on Westlake Health.
The California Supreme Court noted that summary eviction proceedings apply only “in specified circumstances.” (Cal. Civ. Code § 1161a(b)). Under section 1161a(b)(3), summary eviction proceedings are allowed following a trustee’s sale, but only when “the title under the sale has been duly perfected.” Based on the statute’s wording, the Court decided that the perfection of title (recording the trustee’s deed) must happen before the owner could start summary eviction proceedings, including serving a three-day notice to quit.
The bottom line is that, in California, a new owner who gets title to a tenant-occupied property through a nonjudicial foreclosure must be on the property’s title before serving a three-day notice to quit to the tenant.
Foreclosure law is complicated, and this case involved a commercial property rented to a business. If you’re a tenant in a property that’s being foreclosed, you should be aware that, for residential properties, you might be protected from eviction—at least for a while—under the federal Protecting Tenants at Foreclosure Act of 2009 or California state law. If you have any questions about when you have to move out of the property following a foreclosure, consider talking to a lawyer.