Publications
Eviction Issues Concerning Foreclosed Residential Properties
Sedgwick's Real Estate Newsletter
June 2010
The mortgage industry meltdown and the free fall of the real estate market have led not only to unprecedented numbers of foreclosures of residential real property since 2007, but a myriad of problems in dealing with the persons who live in the foreclosed-upon residences as well. Many foreclosed properties are occupied by former owners or existing tenants. Purchasers at a foreclosure or trustee's sale should understand eviction issues applicable to foreclosed properties to know what to expect after foreclosure.
California Purchasers
In California, buyers of real property through a foreclosure or trustee's sale may evict former owners (and persons claiming possession under them) who remain in possession unlawfully after a forced sale. Code of Civil Procedure section 1161a permits the purchaser at a foreclosure or trustee's sale to obtain possession of the property quickly under an unlawful detainer proceeding. Where the property has been sold upon foreclosure against the occupant (or under a power of sale contained in a deed of trust executed by the occupant), and title under the foreclosure or trustee's sale has vested, the buyer may evict the former owner upon service of a written three-day notice to quit. This summary proceeding may also be used against persons who claim possession through the former owner.
Section 1161a is not applicable to the eviction of existing tenants in the foreclosed property. But, a purchaser at foreclosure sale may evict an existing tenant whose leasehold began after the mortgage was recorded as a holdover or periodic tenant under the ordinary unlawful detainer statute. California law permits the eviction of existing tenants on a periodic tenancy (in jurisdictions without eviction control) by the service of a 30-day or 60-day notice to vacate. See Code Civ. Proc. § 1161; Civ. Code §§ 1946 and 1946.1. If the mortgage was recorded after the leasehold or the mortgagee was aware of the lease when the mortgage loan was made, and the tenant did not agree to subordinate its interests to the mortgage, the purchaser may be bound by the lease.
Federally Related Mortgage Loans
Federal law provides further protections for tenants in foreclosed residential properties. The Protecting Tenants at Foreclosure Act of 2009 (Act), which became effective on May 20, 2009, applies to foreclosures on all federally related mortgage loans or on dwelling or residential real property. Under the Act, the immediate successor in interest of the foreclosed property must provide tenants with at least 90 days of notice to vacate. Additionally, if tenants occupy a unit under a lease that was entered into before the notice of foreclosure, then they are entitled to stay until the end of their lease, except when the new owner will occupy the unit as his or her primary residence. The new owner intending to occupy the unit as a primary residence must still provide at least 90 days of notice to vacate.
The protections of the Act apply to tenants under a "bona fide" lease or tenancy. A lease or tenancy is "bona fide" only if all of the following requirements are met: (1) the mortgagor, or the mortgagor's child, spouse or parent is not the tenant; (2) the lease or tenancy was the result of an arms-length transaction; and (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized under a federal, state or local subsidy. The provisions of the Act will expire on December 31, 2012.
Special Considerations: Eviction Controlled Jurisdictions
Lastly, special considerations are warranted in localities where eviction control exists. In eviction controlled jurisdictions such as San Francisco, Berkeley or West Hollywood, tenants in foreclosed properties maintain all of their rights under the eviction control ordinance. These tenants have the right to stay in the unit after a foreclosure on the same terms and conditions of tenancy as before. A foreclosure, like any other sale, is typically not a just cause for eviction under the local eviction control ordinance. Gross v. Superior Court (1985) 171 Cal.App.3d 265, 275-276. Hence, in eviction controlled jurisdictions, it is not generally permissible to evict tenants, even those on a periodic tenancy, simply because the property has gone through foreclosure.
San Francisco in fact has enacted additional protections from eviction because of the large number of foreclosures. Effective April 25, 2010, the San Francisco Rent Ordinance was amended to extend its protections to tenants who live in rental units that were previously exempt from the ordinance. The ordinance now requires an owner of a previously exempt unit who took title through "foreclosure" to qualify under one of 14 just cause reasons to evict existing tenants. "Foreclosure" is broadly defined as "the reversion or transfer of title to a property to a lender, mortgagee, or beneficiary of a deed of trust, or an agent thereof, in full or partial satisfaction of a defaulted obligation." S.F. Adm. Code § 37.9D(a). Additionally, the new owner who took title through foreclosure must provide written notice to existing tenants of this right within 15 days after foreclosure or be barred from evicting the tenants as a result.
Conclusion
Buyers at foreclosure or trustee's sales should be aware of eviction issues applicable to foreclosed properties. In addition to state law, the Protecting Tenants at Foreclosure Act of 2009 and local ordinances concerning the eviction of residential tenants in foreclosed properties could have significant effects on the responsibility and liability of its owners.
|