Written By: Kayo Manson-Tompkins Published in the October 2013 issue of Servicing Management Magazine
Since the enactment of California Code of Civil Procedure (“CCP”) Section 1161a in 1929, evictions following a foreclosure sale have seen relatively minor challenges. Other than Rent Control or Eviction Control issues, or the few who challenged the validity of the underlying loan or foreclosure process, only a small percentage of post-foreclosure evictions presented a test for practitioners. Since the fallout of the 2008 financial crisis, however, post-foreclosure evictions have become akin to navigating a minefield.
Initially, a typical challenge arose through an individual coming forward at the time of lockout and claiming a right to possession under CCP Section 1174.3. This challenge required an additional hearing to determine whether Plaintiff had a right to possession against the claimant and, as a consequence, court dockets became crowded with these types of hearings. In an attempt to remedy this situation, California enacted CCP Section 415.46 (effective January 1, 1991), which provides that if the unknown occupants were served with the complaint and did not come forward to be added as a defendant, any judgment obtained would be effective as to all unknown occupants. However, effective January 1, 2013, the legislature has now created an exception for post-foreclosure rental housing units such that tenants may file a claim of right to possession under CCP Section 1174.25 at any time before a judgment is entered; or under CCP Section 1174.3 to object to the enforcement of judgment, whether or not a prejudgment claim of right to possession was served or not. It appears we have come full circle.
In its prior form, CCP 1161a(b)(3) provided that former owners had three days after service of a notice to quit (and thirty days if a tenant) to vacate the property following a foreclosure sale. CCP Section 1161b became effective July 8, 2008 to protect those who had been a tenant under a lease at the time the property was sold at a foreclosure sale by requiring a ninety-day notice to quit. On May 20, 2009, the federal version was created under Title VII as Protecting Tenants at Foreclosure Act of 2009 to provide bona fide tenants with a ninety-day notice to quit. Effective January 1, 2011, CCP 1161c, now requires a special notice to be attached to a post foreclosure notice to quit informing tenants of their rights. Unfortunately, this trio of new provisions has led to significant abuse on the part of the occupants, and it has become standard practice that judges will demand that any tenant coming forward be given a ninety-day notice if the tenant presented a lease or rental agreement, regardless of arguments that they were not a bona fide tenant. Due to an amendment to CCP 1161b, which became effective January 1, 2013, the purchaser bears the burden of proof that a lease is not entitled to protection. Furthermore, if the lease was entered into prior to the foreclosure sale, the tenant has a right to stay in possession until the end of the lease term, although there are exceptions, in which case the ninety-day notice applies.
Driven by a rise in challenges to the underlying loan or foreclosure process, former owners are also challenging eviction proceedings in ever-increasing numbers. Although there is ample California case authority holding that an unlawful detainer is a summary proceeding and that any complex issues of title are not to be litigated within the unlawful detainer action, not all judges in California adhere to this long-standing precedent, or recognize that issues regarding the underlying loan or the foreclosure process are not properly before the court. Typically, judges that allow complex title issues to be tried in a summary unlawful detainer proceeding are located in remote counties or courts of California, are visiting judges, criminal judges, or members of the judiciary that are simply not familiar with post-foreclosure evictions. Accordingly, it becomes necessary for practitioners to inform these judges on what may or may not be tried in an unlawful detainer proceeding
Although the same delay tactics that existed since the enactment of CCP Section 1161a(b)(3) exist today (such as motions to quash, demurrers, and/or bankruptcy filings), Defendants are becoming increasingly more aggressive. For instance, Defendants are removing cases to Federal Court in an attempt to challenge a Plaintiff’s standing. Typically, the Federal Court will remand the case within a short period of time. In some cases, however, the remand order will not come quickly, and it becomes necessary to file a motion to remand. Defendants have also increased their filings of Petitions or Writs of Mandate to the Appellate Division of the Superior Court because a Defendant disagreed with a ruling on a motion to quash or demurrer. In addition, more Defendants are appealing the judgment for possession than in times past. These appeals typically deal with the issue of whether or not the trial court erred in not allowing the Defendant to raise complex title issues regarding the underlying loan or foreclosure process, and can become the ultimate delay tactic as these appeals may last a year or longer.
In addition, there are those Defendants that file simultaneous civil actions for wrongful foreclosure, cancellation of the Trustee’s Deed Upon Sale, violation of RESPA, TILA, FDCPA, Business & Professions Code violations, and California HOBOR (Homeowner Bill of Rights) violations. These actions typically try to seek a stay of the eviction pending the resolution of the civil action, or Defendants will make an attempt to consolidate the civil and unlawful detainer action. Finally, the so-called “Freemen” Defendants believe that they are governed by laws of the people, not laws of the State of California. These “Freeman” make their own attempt at delay by filing several removals to the Federal Court, sending numerous affidavits and petitions that are not filed with the court, and frequently threaten a Plaintiff with monetary damages if it does not respond.
On occasion, delays are not caused by the Defendants but rather by title issues that are discovered either before or after the eviction starts. Some examples are: undisclosed senior lien holders that went to sale wiping out the purchaser’s ownership interest; an illegal lot line adjustment that prohibits access to the subject property; or discovery of a manufactured home that was not foreclosed upon as it was not affixed to the real property. Other delays stem from the few cities in California that have enacted Rent Control or Eviction Control ordinances. For additional discussion regarding this area, please visit The Wolf Firm’s website and read the following article at http://www.wolffirm.com/2013/09/03/california-renteviction-control-ordinances/.
Although several of the delays discussed existed prior to the financial meltdown of 2008, the intensity and aggressiveness of the defenses raised by former owners has increased dramatically. No matter what the delay might be, practitioners should be prepared and ready to navigate the minefield of California evictions.