Evictions: important changes for lenders conducting residential evictions in california

EVICTIONS:  IMPORTANT CHANGES FOR LENDERS CONDUCTING RESIDENTIAL EVICTIONS IN CALIFORNIA

By Jonathan Seigel
Scheer Law Group
San Rafael, California

Post-Foreclosure Residential evictions are becoming a “battleground” for Lenders in California.  Lenders are being treated in many instances as successor landlords and much greater rights are afforded to anyone who claims a tenancy interest.  When coupled with the recent changes implemented by SB 900, allowing claims for wrongful foreclosure, evictions are becoming a new battleground.

Some of the most important changes in California residential landlord-tenant law effecting purchasers of property at foreclosure sales set forth below.  This article is not intended to encompass all changes in landlord-tenant law in 2013.

TERMINATION OF TENANCIES AFTER FORECLOSURE

California law has been changed to conform more closely with the federal Protecting Tenants at Foreclosure Act (the “PTFA”).  Under AB 2610, a month-to-month tenant in possession of a rental housing property at the time of a foreclosure sale is entitled to 90 days notice of termination of tenancy.

A fixed-term tenant who has entered into a “bona fide” lease before transfer of title at a foreclosure sale has the right of possession until the expiration of the lease.  A “bona fide” lease is one where: (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) the lease or tenancy was the result of an arms-length transaction; and (3) the rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.

If the fixed-term lease is not a “bona fide” lease or the purchaser at sale or purchaser’s successor-in-interest will occupy the property as a primary residence, only 90 days notice is required even if the duration of the lease term exceeds 90 days.

In addition, unlike the PTFA, the California law discussed above does not apply if any party to the Note occupies the property.  However, the PTFA may still apply where tenants reside with borrowers.

The differences between the PTFA and California law are summarized in the table below:

Lastly, if no tenant occupies the property, then only three days notice is required.

FAILURE TO GIVE NOTICE OF NEW OWNER AND PLACE TO PAY RENT

Within 15 days of acquiring ownership of a rental property, the new owner must provide the tenants with the owner’s or agent’s name, and the location where rent is to be paid.  While this is good practice under any circumstances, under AB 1953, the owner may not evict for non-payment of rent during the time that the owner is out of compliance with this requirement, although the tenant is ultimately liable for the rent.  Therefore, the new owner should give this notice immediately upon obtaining ownership.

If notice has not been given and a tenant has failed to pay rent, the owner should give notice of the new ownership and wait at least15 days before serving a three-day notice to pay rent or quit.

ABANDONED PERSONAL PROPERTY

Under prior law, if an occupant vacated the property, but left personal property behind worth in excess of $300, the property owner was required to sell the personal property in a public auction after the expiration of an applicable notice period.  AB 2521 has increased this amount to $700.  Therefore, if the value of the property is less than $700, the owner may dispose of the property or retain it for its own use after the expiration of the notice.  Notices of Belief of Abandonment that are required to be served in most cases should be updated to reflect this new cut-off amount.

“ALL OCCUPANTS” JUDGMENTS NO LONGER RECOGNIZED AGAINST TENANTS IN SOME CASES

One issue that commonly arises in unlawful retainer cases is the presence of an unknown occupant at the property.  Owners are protected owners from claims of possession by unknown occupants that were not named as defendants through the service and expiration of a Prejudgment Claim of Right form along with the summons and complaint.  If the Prejudgment Claim of Right form is served and an unnamed occupant does not file responsive papers with the court within 15 days, the court will issue an “all occupants” judgment cutting off the rights of the unnamed occupant.

Unfortunately, under AB 2610, unnamed occupants may make claims of possession in post-foreclosure eviction cases up to the time of the sheriff’s lock-out even if they failed to timely respond to service of a prejudgment claim of right form.  If this occurs, the sheriff must cancel the lock–out and a court hearing is set to determine whether the person claiming to be an unnamed occupant truly lives at the property.  Some courts are now refusing to issue Prejudgment Claim of Right form in post-foreclosure eviction cases.

Owners can protect themselves from this possibility by thoroughly investigating and documenting the identity of all occupants prior to bring the unlawful detainer action.  However, this may be expensive and is not necessarily determinative.

Because this new ban on All Occupants judgments applies only to post-foreclosure evictions based on Code of Civil Procedure section 1161a, and not to landlord–tenant evictions, another approach may be to file the unlawful detainer actions under landlord-tenant laws for termination of a month-to-month tenancy or the expiration of a fixed lease term.

SB 900 EFFECT

An important result of SB 900 legislation is to remove the “safe harbor” protections allowed to a lender who remedies defects in the foreclosure process prior to conducting a trustee’s sale.  (See, Civil Code § 2924.19).  It is anticipated that as borrowers’ attorneys come to understand the importance of this provision, they will file suits to quiet title or for damages after an eviction action is commenced (or independently) and will seek to stall the eviction by seeking to consolidate the cases.   (See, Asuncion v. Superior Court (1980) 108 Cal.App.3d 141.)   Lenders must be aware of this risk and prepare to “weed out” and attack frivolous claims”