California court holds that under the PTFA the successor purchaser in foreclosed property and the bona fide tenant have a landlord-tenant relationship

Under the Protecting Tenants Against Foreclosure Act (PTFA) 12 U.S.C. 52 §§ 701-704, the purchaser of a home at a foreclosure sale must honor a lease held by a bona fide tenant which was entered into prior to the issuance of a judicial deed for its full term, unless the purchaser intends to occupy the home as his/her primary residence. Otherwise, the tenant must be given 90 days notice prior to the filing of an eviction action. In most states, the PTFA conflicts with the established common law rule that existing leases are terminated when title to a property is transferred through a deed issued in a foreclosure proceeding. The California Appellate Court in Nativi v. Deutsche Bank National Trust, Co. et. al., H037715, -Cal.Rptr.3d-, (6th Dist. January 23, 2014) recently affirmed that the PTFA prevails over state law that would otherwise extinguish [a] bona fide lease and the immediate successor in interest in foreclosed property takes subject to a bona fide tenancy for a term but retains the power to terminate the lease as provided by the Act. The PTFA states that a new purchaser at a foreclosure shall assume such interest subject to a bona fide lease and it may terminate a lease. From this, and the extensive legislative history and administrative construction of the PFTA, the court determined that if the purchaser could terminate a lease under the PFTA, then the lease must survive the foreclosure. This does not mean, as the successor purchaser and its amici argued, that the PTFA merely provides an affirmative defense to a foreclosure. Rather, the immediate successor in the foreclosed property and the bona fide tenant are deemed to have a landlord-tenant relationship. Although the PFTA does not confer a private right of action upon tenants, the rights and obligations which accrue to the tenant under a lease remains in place under the lease after the foreclosure. The court stated In our view, the PTFA’s protection of bona fide tenancies for a term would be empty if it did not impliedly impose a legal duty on immediate successors in interest to make reasonable efforts to identify all bona fide tenants and determine whether they are entitled to continue as tenants under a bona fide lease for the remainder of the lease’s term.

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