In late 2018, the California Supreme Court (the “Court”) issued a ruling in Dr. Leevil, LLC v. Westlake Health Care Center (“Westlake Health”) (2018) 6 Cal. 5th 474 that affects evictions following a non-judicial foreclosure sale. Below is a summary and analysis of the Court’s holding in Westlake Health. Through Westlake Health, the Court has established a clear rule. Title must be recorded (i.e. the Trustee’s Deed Upon Sale) before a purchaser of property from a non-judicial foreclosure can issue a three-day eviction notice.
Plaintiff Dr. Leevil, LLC (“Plaintiff”) purchased a defaulting loan from TomatoBank, N.A. The loan was secured by a deed of trust (“Deed of Trust”) on the leased property. As the holder of the Deed of Trust, Plaintiff instituted a non-judicial foreclosure sale under the Deed of Trust’s power of sale. Plaintiff assumed ownership of the leased property from the foreclosure sale and thereafter served Defendant Westlake Health Care Center (“Defendant”) with a three-day service to quit (“Eviction Notice”). Plaintiff recorded its vesting deed, i.e., the Trustee’s Deed from the foreclosure sale, after the Eviction Notice, but within six days of purchasing the leased property.
Pursuant to Cal C.C.P. § 1161a (b)(3), a tenant can be removed from the property in the following situation and after service of a three-day written notice to quit: “Where 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 executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.” (Emphasis added.)
The Court’s Holding
The Court in Westlake Health held that to perfect title for purposes of Cal C.C.P. § 1161a (b)(3), the trustee’s deed must be recorded. Stated differently, before a foreclosing entity or person can evict the tenant in possession of the foreclosed property, the foreclosing entity or person must record the vesting deed/trustee’s deed prior to serving the statutorily authorized three-day written notice to quit. (See Dr. Leevil, LLC v. Westlake Health Care Center (2018) 6 Cal. 5th 474 484.)
The Court’s Analysis
The crux of this case turned on the fact that although Plaintiff acquired ownership of the leased property through the Trustee’s Deed Upon Sale, Plaintiff issued the Eviction Notice prior to recording the Trustee’s Deed. Before Westlake Health, serving an Eviction Notice before recording the vesting deed was common practice. That’s because Cal.Civ.Code § 2924h(c) holds that a Trustee’s Deed is perfected as of the actual sale date if the trustee’s deed is recorded 15 calendar days of the sale date. Plaintiff argued for this same retroactive application for its “premature” Eviction Notice, but failed. The Court rejected Plaintiff’s argument because it ruled that the “retroactive application” is too prejudicial to the tenant. The Court argued that Cal.Civ.Code § 2924h(c) was enacted to allow a gap period whenever the purchaser from a foreclosure sale tenders payment that may take days to clear. Accordingly, per the Court, there could always be a scenario where the sale is later invalidated because the purchase funds did not clear. In that situation, a tenant who abided by an eviction notice and vacated the premises is severely prejudiced.
“As the McLitus court explained, Dr. Leevil’s statutory interpretation 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 remaining in possession of the property and potentially incurring damages as a holdover tenant if title is, in fact, perfected.” (Dr. Leevil, LLC v. Westlake Health Care Center (2018) 6 Cal. 5th 474 483.) Based on the same, the Court concluded, “that a new owner must perfect title [by recording the deed] 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.” (Id.)
It is important to note that the Court’s interpretation of what it considers “duly perfected title” under Cal C.C.P. § 1161a (b)(3) is limited to this type of proceeding involving evictions following a non-judicial foreclosure sale. Prominent law in this state still holds that recording title is not necessary to convey real property. Instead, recording is strongly encouraged to impart constructive notice on the rest of the world of your claim to ownership.
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