Dr. Leevil, LLC v. Westlake Health Care Ctr. (2018): Title Must Be “Duly Perfected” Before Service of Unlawful Detainer Three-Day Notice, Despite Retroactive Perfection of Title Under Nonjudicial Foreclosure Statutes

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In Dr. Leevil, LLC v. Westlake Health Care Ctr., a property owner leased its property to a skilled nursing facility and later obtained a secured loan. It defaulted. Dr. Leevil, LLC purchased the defaulted loan and initiated a nonjudicial foreclosure sale, ultimately buying the property at the trustee’s sale. Dr. Leevil, LLC served a three day notice to quit the next day, but did not record title for five more days.

Serving the notice before becoming “record owner” seems counterintuitive. However the nonjudicial foreclosure statutes arguably condoned the practice. Cal. Civ. Code § 2924h(c) states, “the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale, or the next business day following the 15th day if the county recorder in which the property is located is closed on the 15th day.”

The unlawful detainer statutes refer to the nonjudicial foreclosure statutes, in setting forth cases of post-foreclosure evictions. Applicable here, “a person who holds over and continues in possession of . . . real property after a three-day written notice to quit the property has been served . . . may be removed therefrom . . . Where the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.” Cal. Code Civ. Proc., §1161a(b)(3).

In other words, Dr. Leevil, LLC believed it could serve the notice to quit first, because it was already the owner, and title could be (and ultimately was) retroactively perfected as of the actual purchase date. The Court of Appeal adopted this interpretation.

The Supreme Court reversed, finding that the present-tense verbs in Cal. Code Civ. Proc., §1161a(b) – “holds over and continues in possession” and “may be removed” – suggested that the facts giving rise to a case of Cal. Code Civ. Proc., §1161a(b)(3) eviction (where a property has been sold and title has been perfected in the past tense) must happen first, before an owner can invoke the unlawful detainer statutes. It found that the purpose of the retroactive perfection of title, under Cal. Civ. Code § 2924h(c), was to protect the trustee (who needed to confirm funds before tendering the trustee’s deed) and the post-foreclosure, unwitting tenant (who may need to verify the record title, so she does not quit unnecessarily).

This decision validates the ruling of the appellate division of the Superior Court of San Diego in U.S. Financial, L.P. v. McLitus, which was later distinguished in the Court of Appeal decision in Dr. Leevil, LLC v. Westlake Health Care Ctr.