Do you have any lease rights after foreclosure of a property you were leasing? What are your lease rights after foreclosure?
Following our prior blog entitled Priorities Between Leasehold Interests and Deeds of Trust, this blog takes a closer examination on the effect a foreclosure has on a pre-existing lease agreement. In a nutshell, our prior blog emphasized the importance of lien seniority. As explained below, a deed of trust/lien that is senior to a lease (came before the lease), will cancel the junior lease upon the foreclosure of the senior deed of trust. This blog explores the rights of the purchaser and tenant following the foreclosure sale.
As a general rule, the foreclosure sale of a senior lien terminates the junior lease. Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman (1998) 65 Cal. App. 4th 1469, 1478. Unless the new purchaser and the remaining tenant execute a new lease, the remaining tenant cannot enforce the terms of the extinguished lease against the new purchaser. See Miscione v. Barton Development Co. (1997) 52 Cal. App. 4th 1320, 1326; Aviel v. Ng (2008) 161 Cal. App. 4th 809, 820. Thus, because the junior lease is terminated by the foreclosure, there is no landlord-tenant relationship between the remaining tenant and the new purchaser. Dover Mobile Estates v. Fiber Form Products Inc. (1990) 220 Cal. App. 3d 1494, 1498. The remaining tenant has no right to remain in the leased premises under any theory of law – neither under privity of contract or estate. Id. Upon the foreclosure of the senior deed of trust, the remaining tenant is merely a hold-over-tenant/tenant at sufferance, i.e., a mere trespasser. Aviel v. Ng (2008) 161 Cal.App.4th 809, 820 [“A tenant under a subordinated lease who remains in possession after the foreclosure sale does so as a holdover tenant (tenant at sufferance)”.]
Based on the foregoing, after the lease is terminated by the foreclosure, the tenant has immediate rights to vacate the premises without any further rent or lease obligations. Dover Mobile Estates v. Fiber Form Products, Inc. (1990) 220 Cal. App. 3d 1494, 1498. However, if the holdover tenant decides to stay, then the purchaser from the foreclosure will have claims against the holdover tenant for ejectment, unlawful detainer, quiet title, and/or declaratory relief.
A holdover tenant who remains in the property will be, inter alia, liable for rent based on the reasonable value of the use and occupation of the premises. Richmond Wharf & Dock Co. v. Blake (1919) 181 Cal. 454, 457. Normally, there is no notice prerequisites to initiate an unlawful detainer action against a holdover tenant. Civ. Proc. Code, § 1161, subd. (1); Vandenbergh v. Davis (1961) 190 Cal. App. 2d 694, 699 [“he became a tenant at sufferance . . . As such, he was not entitled to any notice of termination of his rights”]. However, notice is required before evicting holdover tenants following foreclosure. Specifically, the purchaser is required to serve the holdover tenant a 3-day notice to quit as a prerequisite to filing an unlawful detainer suit against the holdover tenant. Code Civ. Proc., § 1161a, subd. (b).
These are some of the issues to consider when you are a party to a lease involving property that has sold due to foreclosure. Our real estate attorneys at Schorr Law have a great deal of experience with this and other types of real estate matters and disputes. To see if you qualify for a free 30-minute consultation, contact us today!