After Foreclosure, New Owners Must Perfect Title Before Serving a Three-Day Notice to Quit

On December 17, 2018, in Dr. Leevil, LLC v. Westlake Health Care Center, (2018 S.O.S. 5945), the California Supreme Court addressed a split in authority on the issue of when a new owner, who has acquired title to property after a trustee's sale, may serve a three-day written notice to quit on a tenant. The Supreme Court, reversing the Second District Court of Appeal, determined that the new owner must perfect title by recording a trustee's deed upon sale before serving a three-day notice on the tenant.

In the underlying case, Dr. Leevil, LLC (Dr. Leevil) bought a promissory note and deed of trust, commenced nonjudicial foreclosure, and acquired the property via credit bid at the foreclosure sale. After the sale was concluded but before the trustee's deed upon sale was recorded, Dr. Leevil served a three-day notice to quit on the tenant occupying the property, which was in default under its lease. When the tenant failed to vacate the property, Dr. Leevil filed an unlawful detainer complaint and obtained a judgment. The tenant appealed, and the Court of Appeals affirmed the judgment, finding that Dr. Leevil had complied with the requirements of Code of Civil Procedure § 1161a(b) ("Section 1161a(b)").

Section 1161a(b) identifies the circumstances under which a person in possession of real property may be removed therefrom, one of which is "[w]here the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust … and the title under the sale has been duly perfected." The Second District Court of Appeal interpreted Section 1161a(b) to allow a post-foreclosure owner to serve a three-day notice to quit before perfecting title if the trustee's deed is recorded before the owner filed an unlawful detainer action. The Court of Appeal reasoned that as long as title had been perfected before the action to remove the tenant was filed, compliance with the statute was achieved.

The Supreme Court took a different view. It interpreted Section 1161a(b) to require perfection of title as a condition precedent before the new owner was entitled to commence the removal process through service of the three-day notice. In reaching its conclusion, the Supreme Court found that, among other things, its interpretation of the statute eliminated a tenant's potential uncertainty concerning whether the new owner validly held title and was authorized to serve the three-day notice.

Takeaway. After successfully bidding for a property at foreclosure, new owners should have the trustee's deed recorded as soon as possible and make sure they verify it has been recorded before serving a three-day notice to quit.