Written By: Eric D. Dean
Included within the California Homeowner Bill of Rights are Acts effective through December 31st, 2019 and directed at providing protection for tenants and prospective tenants on residential properties only where foreclosures are in process or completed.
Act 1: Amendment to Civil Code Section 2924.8 and Code of Civil Procedure Sections 415.46 and 1161b
Pre-Foreclosure
The Act requires the Notice of Sale posted on the property that is being foreclosed to include a provision that if the property is being rented, the new owner may either give the tenant a new lease or rental agreement, or provide the tenant with a 90 day eviction notice and that if a tenant has a lease, the new owner must honor the lease unless the new owner intends to occupy the property as a primary residence or “under other limited circumstances”. It places the burden of disputing leases on the post-foreclosure owner, and amends “pre-judgment claim” rules to plug a loophole banks and investors have used to evict tenants without ever naming them in eviction proceedings (further expounded on below).
The Department of Consumer Affairs is charged under the Act with translating this form of notice into multiple designated languages. The Act is effective on March 1, 2013 or 60 days after these translations of the required Notice are posted on the Department’s website, whichever is later.
Enforcement of this portion of the Act anticipates local enforcement and possible criminal prosecution for violations.
Post Foreclosure
The post foreclosure sections of the act were effective on January 1, 2013. These sections create a wide ranging expansion of the rights of tenants under California law after a foreclosure has been completed and a corresponding burden on the successful bidder at the Trustee Sale.
Right to Contest Unlawful Detainer Action: The right of a tenant to contest an unlawful detainer action filed post foreclosure is greatly expanded even after an unlawful detainer judgment has been entered and even if the tenant was served by the new owner with a pre-judgment claim to a right to possession.
Right to Possession: Except for certain designated exceptions that are hereinafter discussed, if a tenant occupies a foreclosed property under a lease entered into 15 or more days prior to a Notice of Trustee Sale, the successful bidder at the trustee sale must honor the lease. If the tenant occupies the property under a month to month tenancy or a lease entered into less than 15 days from a Notice of Trustee Sale, the tenant must receive at least 90 days’ notice before the new owner can file an unlawful detainer action.
Exceptions to Requirement That Lease Be Honored: Unlike the Federal Tenant Protection Act which mandates that a lease be bona fide and at arm’s length or the Tenant is not protected by the Act, the California Act requires that 90 days’ notice be given to a Tenant who occupies the property under a lease purported to have been executed before the foreclosure was concluded even if the purported lease is a sham:
“… all rights and obligations under the lease shall survive foreclosure, except that the tenancy may be terminated upon 90 days written notice to quit… if any of the following conditions apply…”
The referenced conditions are similar to the Federal Tenant Protection Act as follows:
- Intent by owner to occupy as a principal residence;
- The lessee is the mortgagor (see below) or his or her spouse, child or parent;
- The Lease was not arms length;
- The rent under the lease is not at market;
- Caveat in the Act: “This section does not apply if any party to the note remains in the property in the property as a tenant, subtenant, or occupant.”
One can only speculate as to the ramifications of this incredibly poorly drafted but critical part of the Act and how it will be interpreted. For example, the Act makes reference to both a mortgagor and party to the note. In the vast majority of instances a party to a note is also a mortgagor. The plain language of the Act would indicate that while a sham lease (as defined) may not be enforceable, the 90 day notice requirement applies even where the lease is a sham and the lessee is a mortgagor or close family member. Therefore the distinction between a signatory of the Note and a Mortgagor appear to have significance under the Act despite in a practical sense no distinction typically exists. While arguably a party to the note and his or her family are not entitled to the 90 day notice when the party to the note remains in possession, it appears that family members are entitled to 90 days’ notice when the party to the note is no longer in possession.
Tenant Performance: Unlike the Federal Tenant Protection Act, the California Act expressly requires the tenant to pay rent and perform all other lease obligations. However, it remains unclear what kind of notice is required if the lease is being terminated because of a breach of the lease. It therefore would appear that the terms of the lease and existing statutes would continue to govern.
The Notice of Prejudgment Right of Possession: The Act focuses on a “Prejudgment Right of Possession” form as part of the eviction process. While not mandated under the Act, use of the Notice may have materiality benefit if included with the service of the summons and complaint. The Notice must be personally served by a Marshall, Sheriff or Process Server on any person known to the owner to be occupying the property. The person making service is mandated by the Act to use reasonable diligence to determine if any adult not named in the Complaint occupies the property and to inquire if the person being served as to whether anyone else occupies the property. If so, and this additional occupant is available, the person making the service is mandated to effect service on the additional occupant if his or her name is determined. If the newly disclosed occupant is not available, then subservice can be effectuated on the newly discovered occupant by leaving a copy of the summons and complaint and the Notice with an adult at the property and posting an additional copy of these documents in a conspicuous place. However, this only applies to newly discovered occupants whose names are discovered.
Impact Of Service Of Prejudgment Notice of Right of Possession While not entirely clear under the Act: If the above requirements are met and a Proof Of Service is on file with the Court, it appears that occupants of the property served with the Notice , whether served or not and whether named in the judgment or not, cannot challenge the enforcement of the judgment. However, a prejudgment claim of right to possession would appear to still be permitted.
Caveat as with the Federal Tenant Protection Act : There are multiple ambiguities under the Act that could result in further confusion and delays in the eviction process, contradictory interpretations of the Act by Judges and further congestion in unlawful detainer courts.
AB 1953 – Notice Of Change of Ownership Pending Foreclosure to Prospective Tenants
This Act which became effective January 1, 2013 reinforces the obligations of new owners of tenant occupied property to give prompt notice to tenants of a change in property ownership by prohibiting the commencement of an eviction based on the tenant’s non-payment of rent for the period in which notice of the change in ownership was not given.