California Supreme Court holds that a purchaser of real property at a foreclosure sale must perfect title prior to serving a notice to quit

In Dr. Leevil, LLC v. Westlake Health Care Center, S241324 (Dec. 17, 2018) the California Supreme Court resolved a procedural question related to the timing of the notice that must precede an unlawful detainer action, where the action was not brought by the landlord, but rather by a mortgagee that acquired title to the property under a power of sale contained in a deed of trust. The Court ruled, based on the California Code of Civil Procedure, that the new owner must perfect title prior to serving the notice to quit.

The mortgagee instituted a non-judicial foreclosure and bought the property at a trustee’s sale. The next day, the mortgagee served a written notice to quit on the tenant. Five days later, it recorded title to the property. When the tenant did not vacate, the mortgagee initiated an unlawful detainer action. Proceedings in the trial court ended in a judgment against the tenant. The Court of Appeal affirmed, and concluded that, under Code of Civil Procedure section 1161a(b), an owner acquiring title to property under a power of sale contained in a deed of trust need not perfect title before it serves written notice to quit on the possessor of the property. The new owner may serve the notice to quit immediately after acquiring ownership, after which it may perfect title, so long as title is perfected before the unlawful detainer action is filed.

The Supreme Court disagreed with this interpretation of the statute and reversed the judgment. Section 1161a(b) authorizes a summary proceeding to remove the possessor of real property after a notice to quit has been served in specified circumstances. Section 1161a(b)(3), the relevant subsection, reads “(w)here the property has been sold…under a power of sale contained in a deed of trust…and the title under the sale has been duly perfected. The Supreme Court noted that the provision is written in the past tense (“has been sold” and “has been duly perfected”), suggesting that these actions must be completed. It deemed these choices of verb tense strongly supported the conclusion that section 1161a(b)(3) enumerates conditions precedent that the plaintiff must satisfy before invoking the substantive provision of section 1161a(b)—that is, before serving a notice to quit.

To interpret the statute differently would put a tenant in a precarious position. A tenant would be forced to choose between vacating the property without assurance that title will ever actually be perfected or remain in possession and potentially incur damages as a holdover tenant if title is subsequently perfected. In the first scenario, if the successful bidder at the trustee’s sale fails to pay the purchase price, the sale could be rescinded, in which case the tenant vacated the property unnecessarily. In the second scenario, the tenant could be liable for damages that exceed the rent specified in the tenant’s lease. “Our conclusion that a new owner must perfect title before serving a three-day written notice to quit eliminates these uncertainties by allowing the tenant to verify title during the three-day notice period. It thus effectuates the purposes of section 1161a(b), protecting the tenant’s interests without excessively burdening the new owner.”

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