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Eviction After Foreclosure: California Supreme Court Weighs In

This week, the California Supreme Court issued its opinion in Dr. Leevil, LLC v. Westlake Health Care Center.  The case reviewed the decision of the California Court of Appeal from March 2017, which was reviewed on Money and Dirt here: Eviction Immediately After Foreclosure?

Below, we recap the facts of the case and the 2017 Court of Appeal opinion, and then summarize the Supreme Court’s ruling.

Facts and Court of Appeal Opinion

Dr. Leevil, LLC owned a loan that fell into default, and conducted a nonjudicial foreclosure sale (trustee’s sale) of the security property, at which it was the successful bidder.  The property was occupied by a nursing facility tenant (Westlake Health Care Center).  The day after the trustee’s sale, Leevil served Westlake Health with a three-day notice to quit the property.  Leevil recorded the Trustee’s Deed five days later.

Westlake Health refused to vacate the property, and Leevil sued for unlawful detainer.  Westlake Health claimed that the notice to quit was invalid because it was served before the Trustee’s Deed was recorded.

The Court of Appeal rejected Westlake’s argument, finding that Leevil did not need to perfect its title (by recording the Trustee’s Deed) before serving the notice to quit.  It was sufficient that the Trustee’s Deed was recorded before Leevil filed its lawsuit for unlawful detainer.

Supreme Court’s Holding

The Supreme Court reversed the judgment of the Court of Appeal, holding that the new owner of the property after a trustee’s sale must perfect title before serving a notice to quit.

The Court began by noting that the summary eviction proceedings authorized by Code of Civil Procedure section 1161a(b) apply only “in specified circumstances.”  Leevil relied on section 1161a(b)(3), which authorizes summary eviction proceedings following a trustee’s sale, but only when “the title under the sale has been duly perfected.”  

Based on the wording of the statute, the Court held that the perfection of title (by recording the Trustee’s Deed) is a condition precedent that the owner must satisfy before invoking the statute’s summary eviction proceedings, including serving a three-day notice to quit.

Here, Leevil served its three-day notice to quit before recording its Trustee’s Deed, and therefore was not entitled to invoke the summary eviction proceedings set forth in section 1161a(b).  Because of the summary, expedited nature of unlawful detainer proceedings, the procedural requirements “must be followed strictly.”  Leevil’s “notice to quit was, therefore, premature and void, and its unlawful detainer action, improper.”

The Court of Appeal’s opinion in Leevil’s favor, the Supreme Court held, failed to appreciate the structure of the statutory language — i.e., that the perfection of title was a condition precedent that must be satisfied before invoking any eviction proceedings, including service of a notice to quit.

The Court rejected Leevil’s argument that, under Civil Code section 2924h(c), its recordation of the Trustee’s Deed was retroactive to the date of the sale.  The Court held that the conditions precedent in section 1161a(b) must be satisfied at the time the notice to quit is served.  The Court stated: “The fact that Dr. Leevil later met those conditions, and the fact that the conduct that satisfied those conditions was deemed to be retroactive, does not change the fact that Dr. Leevil was not in strict compliance with section 1161a(b) when it took the first step in the removal process that the statute authorizes.”

The Court noted that its ruling protects the interests of tenants following a foreclosure sale, who “may not know whether the entity serving the notice to quit is a bona fide owner” due to the uncertain state of title.

Lesson

In the words of the Supreme Court: “an owner that acquires title to property under a power of sale contained in 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).”

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