Eviction After Foreclosure: Further Developments from the Courts
A foreclosure sale purchaser attempting to evict a tenant on the property can encounter pitfalls, as made clear in a series of court cases in recent years. Here is a summary, capped by an update on a recently filed opinion:
2017: Dr. Leevil opinion in the Court of Appeal
A May 2017 post on Money and Dirt — Eviction Immediately After Foreclosure — recapped an opinion published by California’s Second Appellate District, Dr. Leevil, LLC v. Westlake Health Care Center, holding that Code of Civil Procedure section 1161a “does not require that title be perfected (i.e., that the trustee’s deed be recorded) before service of the three-day notice. It requires that title be perfected before a tenant ‘may be removed’ from the property.”
Under that holding, a notice to quit to the tenant would be held valid as long as the trustee’s deed is recorded before the owner files a lawsuit for unlawful detainer.
2018: Dr. Leevil opinion in the California Supreme Court
A December 2018 post on Money and Dirt — Eviction After Foreclosure: California Supreme Court Weighs In — reviewed the California Supreme Court’s opinion in Dr. Leevil, LLC v. Westlake Health Care Center, in which the Supreme Court reversed the Court of Appeal’s opinion described above.
The Court held: “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).”
In that case, the foreclosing lender who was the successful bidder at the trustee’s sale served a premature and void three-day notice to quit on the tenant before recording its Trustee’s Deed. The Court held that Leevil’s “notice to quit was, therefore, premature and void, and its unlawful detainer action, improper.”
2023: Taptelis opinion in the Court of Appeal
An October 2023 post on Money and Dirt — A Lis Pendens Recorded Before a Trustee’s Sale is a “Cloud on Title” that Might Thwart an Unlawful Detainer Claim” — covered an opinion published by California’s Sixth Appellate District, Homeward Opportunities Fund I Trust 2019-2 v. Taptelis, in which the Court of Appeal followed the logic in the Dr. Leevil case and sided with a tenant (Taptelis) contesting an unlawful detainer action following a trustee’s sale.
The court held that Tatpelis’ recordation of a lis pendens before the trustee’s sale created a “cloud on title,” and Homeward was required to “either expunge the lis pendens or resolve the wrongful foreclosure litigation before it could serve the notice to quit necessary to initiate an unlawful detainer action.” The opinion further held that the trial court erred in excluding evidence of Taptelis’ recorded lis pendens.
2024: Rehearing granted in Taptelis; new unpublished opinion leaves questions unanswered
The Tatpelis Court of Appeal granted rehearing, vacating its opinion described above. After further briefing, the court issued a new, unpublished opinion: Homeward Opportunities Fund I Trust 2019-2 v. Taptelis. Because it is unpublished, the opinion is not precedent, but it provides useful guideposts and a conclusion to the underlying case.
In the Court of Appeal’s new opinion, the court ruled that the trial court’s exclusion from evidence of Taptelis’ recorded lis pendens was “harmless” because Taptelis’ “lis pendens was void for lack of a proof of service so it did not cloud Homeward’s title under the sale. … Because no cloud on title has been identified, Homeward’s recordation of the trustee’s deed was the last step to duly perfect title under the sale within the meaning of section 1161a, subdivision (b)(3).”
In other words, Taptelis could not rely on his lis pendens as a “cloud on title” that would need to be addressed by Homeward before any eviction proceedings because the recorded lis pendens did not include a proof of service. The failure to include a proof of service with the recorded lis pendens rendered the lis pendens void under Code of Civil Procedure section 405.23. As such, “even if a valid lis pendens could cloud title under the sale, Taptelis’s lis pendens did not.”
In a footnote, the court explained: “We do not address whether a valid lis pendens would have prevented Homeward’s perfection of title under the sale within the meaning of section 1161a, subdivision (b)(3).”
Even so, given the Supreme Court’s strong language in the Dr. Leevil opinion, it seems that a prudent foreclosure purchaser would take steps to remove a lis pendens (by filing a motion to expunge) before initiating eviction proceedings.