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New Owner Through Foreclosure Must Perfect Title to Property Before Serving a Three-Day Notice to Quit to Tenant

December 20, 2018

On Monday, December 17, the California Supreme Court issued its ruling in Dr. Leevil, LLC v. Westlake Health Care Ctr., No. S241324, 2018 LEXIS 9546 (Cal. Dec. 17, 2018) that an owner acquiring title to real 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 California Code of Civil Procedure section 1161a(b). 

Westlake Village Property, L.P., owned real property in Thousand Oaks. In 2002, the owner leased the property to Westlake Health Care Center. Six years later, the owner obtained a loan which was secured by a deed of trust on the property. The owner subsequently defaulted on the loan and the bank sold the promissory note and deed of trust to Dr. Leevil, LLC. Dr. Leevil, LLC, then instituted a nonjudicial foreclosure and bought the property at a trustee’s sale. The next day, but prior to the trustee’s deed recording, Dr. Leevil, LLC, served a three-day written notice to quit upon Westlake Health Care Center. The trustee’s deed was recorded five days following the sale. Westlake Health Care Center did not vacate the property and Dr. Leevil, LLC, initiated the unlawful detainer action. 

On appeal, the Second District Court of Appeal interpreted Section 1161a(b) to permit the three-day notice prior to perfecting title so long as the trustee’s deed is recorded before initiating an unlawful detainer action. In overruling the Appellate Court, the Supreme Court’s analysis highlights the importance of Section 1161a(b) and its intent to protect a tenant’s interests without excessively burdening a new owner. If a new owner of the property does not perfect title before issuing the three-day notice to quit, a tenant may not know whether the entity serving the notice to quit is a bona fide owner. The tenant would be forced to choose between vacating the property without assurance that title will ever actually be perfected or remaining in possession of the property and potentially incurring damages as a holdover tenant if title is, in fact, perfected. 

A party who successfully acquires title to real property at a foreclosure sale should make sure that the deed is recorded as soon as possible and ensure that title is perfected prior to serving a three-day notice to quit on any tenants.

For more information, please contact the author of this alert, Jason E. Grinnell, Senior Counsel, at 213-457-1761 or jgrinnell@dykema.com, or your Dykema relationship attorney.

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