California Supreme Court Adopts New Rule Related Timing of Service of a Notice to Quit

Today’s case involves adventures in grammar, general real estate shenanigans, and a very simple lesson: don’t put the cart before the horse.

The background: Westlake Village Property (WVP) leased a nursing facility (get the title now? Eh?) to Westlake Health Care Center (Westlake Health) for a twenty-year term with a clause of automatic subordination. Six years in, WVP took out a loan from TomatoBank, executing a deed of trust on the property occupied by Westlake Health. WVP ended up defaulting on the loan and the bank sold it to Dr. Leevil, LLC, who instituted a nonjudicial foreclosure and snapped up the nursing home at a trustee sale.
The day after the purchase, Westlake Health received a three-day notice to vacate from Leevil. Westlake Health refused to leave, so Leevil sued for unlawful detainer.

Here’s where it starts to get tricky.

Tripping over yourself to evict a nursing home isn’t amazing optics, but regardless, Leevil was well within his rights. The original proprietors defaulted on their loan, Leevil purchased the place fair and square, yes? Well… that’s when the issue of the trustee’s deed rears its fruity little head.

You know, fruity? TomatoBank? No?

Everyone’s a critic.

The problem was that Dr. Leevil served the notice a day after the sale, but only recorded the trustee’s deed five days later. Although Leevil held the equitable title to the property, he didn’t officially have the legal title until he settled the matter with the bank almost a week after making out the notice. Arguably, he didn’t have the right to evict anyone. Although it’s a technicality, it’s one of the two main points raised by Westlake Health in answer to the suit, the other one being that their lease was senior to the deed of trust altogether.

The first court case was decided in Leevil’s favor, as was the appeal, but the decision was unanimously reversed in the California Supreme Court. This decision was based on the wording of CCP §1161a(b), which delineates the criteria for eviction of a tenant by a new owner and states the property must have been “sold in accordance with Civil Code §2924, under a power of sale contained in deed of trust, AND the title under the sale has been duly perfected.” The past tense and connection of the conditions by the conjunctive “and” indicate that all three have to be met.

Finicky? Yes. But predictable, too, since the Court of Appeal had presided over an almost identical situation just a few years before (U.S. Financial v. McLitus, JAD16-07 (Cal. Ct. App. 2016)) and come to the same conclusion. It’s hard to say why they ruled differently in Leevil v. Westlake, but it makes sense that the Supreme Court would look back and agree with such a recent precedent.

The takeaway here is that with two cases in a relatively short amount of time being decided the same way, new owners would be wise to perfect title before trying to evict people or taking other drastic actions. You may have a lot of ideas for your new property, but slow your roll. A little measured, thorough thinking will save you time and money in the long run, guaranteed.