Webinar On Mortgage Forbearance for Landlords under the CARES Act

May 27th, 2020

Brian Huddleston, and Kristin Maun, Housing Coordinator for the City of Tulsa, presented an educational webinar on the mortgage forbearance and eviction moratorium provisions for landlords under the CARES Act. This webinar was recorded and we will post a link as soon as the video is available. The PowerPoint slides are here. It is helpful for landlords and property owners to learn more about mortgage relief and the eviction moratorium under the CARES Act. Including the secondary eviction moratorium applicable to those multi-family properties covered by a federally backed loan for which the borrower obtains a temporary mortgage forbearance after the general moratorium ends in late July.



Street Law School: Commercial Landlord Self-Help Evictions

May 26th, 2020

The ability of a landlord to evict a tenant during the COVID-19 outbreak is severely limited by executive or judicial orders issued in response to the pandemic. Most courts have limited operations and some have suspended residential and commercial evictions in addition to the CARES Act (discussed in a separate Blawg post).

In the absence of the ready availability of judicial eviction proceedings, landlords are asking if they can use self-help methods to evict or lock out tenants. In Oklahoma, the answer is a resounding “NO!” For example, in the Oklahoma Residential Landlord and Tenant Act, the landlord’s self-help remedies are outright eliminated, and the landlord is required to pursue judicial remedies only. Commercial landlords may think that the self-help remedies carefully detailed in their leases are enforceable as written. But they are not! Landlords may enforce their rights only by the judicial process despite language to the contrary in their commercial leases. See, Parker Livestock, LLC v. Okla. City Nat’l Stock Yards Co. (W.D. Okla., 2015) (An action for forcible entry and detainer is the exclusive procedure for ousting a both residential and commercial tenants.).

Thus, self-help measures, such as changing locks, cutting off utilities, or removing tenant property, may expose a landlord to civil damages, and a landlord should carefully consider and seek legal advice before acting. The statutory penalty for a wrongful residential eviction is two (2) times the rent for the period of the eviction until the property is restored to the tenant, plus attorney fees and court costs.

Demand for Cleaning and Quiet Enjoyment

Cleaning issues are likely to take center stage after the outbreak ends and business restrictions are lifted. Even if not expressly provided for in the lease or demanded by the tenant, landlords should take reasonable steps to maintain the property during and after the outbreak, following CDC guidelines for proper cleaning and disinfection.

Failing to maintain the property or failing to take appropriate steps to clean the property and prevent the spread of disease may be grounds for a breach of the landlord’s covenant of quiet enjoyment or for constructive eviction. Constructive eviction is a high bar, but issues related to the pandemic will provide opportunities for the development of case law applicable to our current circumstances.

As the length of business shutdowns grow, so will the scope and magnitude of issues that landlords and tenants need to navigate. The most effective method for dealing with the effects of the COVID-19 outbreak is for landlords and tenants to proactively communicate and avoid making decisions that could be regretted later.


Victory on Appeal! Beeler vs. BONY

May 17th, 2020

Huddleston Law Offices is pleased to announce that Brian Huddleston just won a successful appeal in a long fought real estate foreclosure case involving the application of 12 O.S.2011, § 2025 and 12 O.S.2011, § 2017. The Oklahoma Court of Civil Appeals issued an unpublished decision on May 12, 2020 reversing and remanding the case to the trial court in Tulsa County for further proceedings.  The opinion can be viewed here.

Case No. CJ-2005-1683 (yes, 2005!) began as an action for foreclosure of the Beeler home by The Bank of New York, Trust U/A dated 12/1/01 (EQCC Trust 2001-2). BONY was granted summary judgment that was reversed on appeal in 2013 due to BONY’s lack of standing to sue under the 2012 line of Oklahoma Supreme Court cases following Deutsche Bank Natl Trust V. Brumbaugh, 2012 OK 3, 270 P.3d 151. After the case was remanded, Huddleston argued that BONY’s petition should have been dismissed with leave granted to allow BONY to file an amended petition with the required properly endorsed note attached under the curative procedure established in HSBC Bank USA V. Lyon, 2012 OK 10, 276 P.3d 1002.

At BONY’s peril, the trial court did not require BONY to follow Lyon to cure the jurisdictional defect. Instead, BONY was allowed to substitute Nationscredit Financial Services Corporation as the plaintiff. Nationscredit in turn was allowed to substitute DLJ Mortgage Capital as the plaintiff (the latter two arguing in turn that they were the “holder” of the note and thereby entitled to substitution). DLJ filed and obtained summary judgment. On appeal for the second time, the COCA validated Huddleston’s argument that, because BONY never established its standing at the time it commenced the foreclosure case in 2005, it could not ignore the Lyon procedure and use 12 O.S.2011, § 2025 and 12 O.S.2011, § 2017 to substitute NationsCredit or DLJ as plaintiffs. That is to say, a plaintiff lacking standing to sue can’t cure that jurisdictional defect by simply substituting in a new plaintiff that arguably does have standing. Rather, the case must first be dismissed and refiled by the new plaintiff that must establish its own standing to sue.

The Beeler case stands for the proposition that, if a foreclosing plaintiff lacks standing to sue, the trial court also lacks jurisdictional power to grant any relief under 12 O.S.2011, § 2025 and 12 O.S.2011, § 2017 until the original petition is first dismissed and refiled by the original plaintiff with the properly endorsed note attached to the petition. Absent committing fraud upon the court, BONY could not do this after the first appeal in 2013, and cannot do it now after the second appeal, because BONY signed a special indorsement of the note to NationsCredit in 1998, and recorded an assignment of the mortgage and note to NationsCredit in 2007. After 15 years of fighting BONY, vindication was had with these words by the COCA in the Beeler opinion: “Bank was never the holder of the note.”

Brian Huddleston has achieved several appellate court victories since the foreclosure crisis began over a decade ago. While lenders usually win their cases on summary judgment, Huddleston defends borrowers with an extensive motion practice that many times provides the basis for the summary judgments to be critically reviewed and reversed on appeal. The lender’s legal arguments and evidentiary materials can be deficient in many ways. Often the errors are procedural and a technicality. Huddleston Law Offices is gratified to once again be found to be technically correct, which when it comes to appeals, is the best kind of correct.


CARES Act Impact on IRS 1031 Tax Free Exchanges

April 10th, 2020

Late yesterday, the IRS issued Notice 2020-23, extending a variety of deadlines, including 1031 deadlines. Although the Notice is confusing, because it is not written like the typical Disaster Relief Notices, this Notice extends any 45-day or 180-day deadline that occurs between April 1 and July 14, to July 15, 2020.


Landlords Beware: CARES Act Impact On Leases

April 10th, 2020

The CARES Act includes a number of provisions affecting properties with federally backed loans (e.g., Fannie Mae, Freddie Mac, FHA, HUD, Section 8, VA and USDA). Specifically, a moratorium is in place preventing evictions of residential tenants. The key provisions include the following:

  • There is a 120-day period beginning on March 27, 2020 (the “Moratorium Period”), where the landlord of a “covered dwelling” cannot (A) make, or cause to be made, any filing to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent; (B) impose any late fees, penalties or other charges on a tenant for late payment of rent; and (C) mail or post any notices to pay rent or quit (not limited to nonpayment) during the 120 day period.
  • During the Moratorium Period the landlord of a covered dwelling cannot: (A) require a tenant to vacate a dwelling unit located in an applicable property before the date that is 30 days after the date the tenant is provided a notice to vacate; and (B) may not issue a notice to vacate until after the expiration of the Moratorium Period.
  • An “applicable property” includes one that has a Federally backed mortgage loan or a Federally backed multifamily mortgage loan.
  • A “covered dwelling” is (A) a dwelling that is occupied by a tenant pursuant to a residential lease or without a lease or with a lease that is terminable under State law and (B) is in or on a covered property.
  • A “dwelling” includes apartment buildings, mobile homes, trailer parks, condominiums and certain single-family homes.
  • A “Federally backed mortgage loan” is any loan that is secured by a first or subordinate lien on real property (including individual units of condominiums or cooperatives) designed principally for the occupancy of from one to four families that is (A) insured by the Federal Housing Administration or the National Housing Act, (B) guaranteed under Housing and Community Development Act, the Department of Veterans Affairs, or the Department of Agriculture, or (C) purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
  • The “covered period” is the period commencing on March 27, 2020 and ending on the first to occur of (A) the termination date of the national emergency concerning the coronavirus disease outbreak declared by the President on March 13, 2020 and (B) December 31, 2020.
  • This moratorium is not limited to tenants affected by COVID-19, but appears to apply to all tenants regardless of their situation.
  • Nearly half of the nation’s mortgages are owned or backed by Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac have easy loan look-up websites to determine if they own a mortgage. To look up online whether a mortgage is owned or backed by Fannie or Freddie, click these links:
  • The CARES Act authorizes criminal penalties, under existing law, for fraud or other misconduct, and creates an Office of the Special Inspector General for Pandemic Recovery within the US Department of the Treasury to coordinate the auditing and investigation of the management and spending of funds under any program established under the CARES Act.
  • Finally, the CARES Act protections are in addition to any state or county limitations on evictions. Here is a link to the current emergency orders in place for Oklahoma.


Street Law: I am a Landlord, can I get COVID relief Too?

April 9th, 2020

President Trump signed the Coronavirus Aid Relief and Economic Security Act (CARES Act) into law on March 27th. That Act included relief in the form of $349 billion for loans to small businesses through the Payroll Protection Program (“PPP”) administered by the U.S. Small Business Administration (“SBA”). The SBA initially described the PPP as a program “for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19.”

Last night the Small Business Administration issued Interim Regulations relating to the Paycheck Protection Program (“PPP”). Although the CARES Act provides that any business is eligible for the PPP Loan Program, the Interim Regulations refers to 13 CFR 120.110 and the SBA “standard operating procedures” (SOP) 50-10 Subpart B Chapter 2. Both of those provisions make it clear that “passive businesses” are not eligible for CARES Act money. In that regard, 13 CFR 120.110 excludes:
“c) Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds.” SOP 50-10 further states that “Businesses that are primarily engaged in owning or purchasing real estate and leasing it for any purpose are not eligible”, that “Apartment buildings and mobile home parks are not eligible”, and that “Residential facilities that do not provide healthcare and/or medical services are not eligible.”

As a result of the Interim Regulations, unless Congress changes the CARES Act to circumvent the Interim Regulations, Real Estate holding companies, Landlords, RE investors, HOAs, Co-Ops and Condominiums are not eligible for to receive PPP Loans.


COVID’S IMPACT ON LEASES PART 2: What About Impossibility?

March 25th, 2020

What is the defense of impossibility?

The doctrine of impossibility is an affirmative defense that excuses certain breaches of contract. (“Affirmative defense” means a defense raised by the defendant in answering a complaint alleging breach of contract). Generally, the defense applies when someone makes a promise they are unable to perform because of a change in circumstances that occurred after the contract was entered into. In legalese this is referred to as a “supervening impossibility”. Another key point is the doctrine recognizes that the contract is valid and enforceable, but when a court or jury finds that the doctrine applies, the doctrines operates to “excuse” performance. The defense of impossibility is distinct from a force majeure clause in a contract because the defense need not be in a contract, whereas a force majeure clause is a specific contractual provision that may define conditions in which performance is excused.

When might the doctrine of impossibility apply?

Typically, impossibility may excuse a party from performing its contractual obligation in circumstances such acts of God, supervening illegality, death or disability of a person required to perform, war, and labor strikes. The defense does not apply if the person who seeks to be excused from performing is at fault for making the performance impossible in the first place.

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What is not a supervening circumstance that makes performance impossible?

Financial hardship and most unexpected difficulties. Courts are nearly uniform in ruling that a price increase, or an increase in the burden of performing, even if unanticipated, is not sufficient to establish that performing a contractual promise was impossible. A key issue is whether the risk was one that reasonably should have been anticipated at the time of contract formation and, if so, whether it should have been addressed in the contract.

What have courts said about impossibility in the context of epi(pan)demics like COVID-19?

Naturally, no case concerning COVID-19 and impossibility has yet found its way through the courts. But courts considered such questions a century ago in connection with influenza and diptheria outbreaks:

  • Crane v. School Dist. No. 14 of Tillamook Cty., 95 Or. 644 (1920)—holding that the closing of a school by a health officer on account of an influenza epidemic was not a sufficient to establish the defense of impossibility because, in part, the closing of the school did not necessarily suspend the need for transporting students.
  • Gregg School Township v. Hinshaw, 76 Ind. App. 503 (1921)—holding that where a school closed because of a flu epidemic, a district’s contract with a teacher was impossible to perform and the teacher was not entitled to payment for the period the school was closed because of the epidemic.
  • Napier v. Trace Fork Mining Co., 193 Ky. 291 (1921)— holding that where a construction contract entitled a contractor to an bonus payment for completing the work before a certain date, the contractor’s completion after that date did not entitle the contractor to the bonus payment even though performance before that date was rendered impossible by the prevalence of the influenza epidemic.
  • Sandry v. Brookyn Sch. Dist. No. 78, 47 N.D. 444 (1921)—holding that a school district was excused under the impossibility doctrine from paying a school bus driver during a three-month period in which the school was closed because an influenza epidemic.
  • Phelps v. School Dist. No. 109, 134 N.E. 312 (Ill. 1922)—holding a school not relieved of liability to pay teacher during a closure caused by diptheria because the spread of a contagious epidemic was something foreseeable that could have been addressed in a contract of employment.
  • Poss v. The Western Assurance Co., 75 Tenn. 704 (1881)—holding a policy of insurance against loss by fire that voided coverage if manufacturing “shall cease to be operated” did not apply where the factory temporarily shut down because of a deadly epidemic.

Before a landlord responds to a tenant’s claim that the lease is impossible to perform, both the lease and local law should be reviewed. Impossibility does not dispute the validity of the contract, but is a legal “excuse” that might allow a court to not hold a party liable for failing to perform their end of a bargain.



March 25th, 2020

Oklahomans convicted of nonviolent felony crimes are eligible for expungements without a pardon from the governor. Okla. Stat. Tit. 22, Sections, 18 (A)(12), authorizes expungements of criminal records under the following circumstances: The person was convicted of a nonviolent offense not listed in Section 571 of Title 57 of the Oklahoma Statutes, the person has not been convicted of any other felony or separate misdemeanor in the last seven years, no felony or misdemeanor charges are pending against the person and at least five years have passed since the completion of the sentence.

There are limitations to the expungement.

  • First, the expungement does not restore your right to possess a firearm unless you also receive a pardon.
  • Second, the record will always be available for law enforcement purposes.
  • Finally, private background investigation companies are not notified of your expungement. It will be necessary to send such companies notice of and a copy of the expungement order if you learn that they are still reporting your conviction records to third parties.

There are tremendous advantages to having the felony conviction expunged.

  • First, you are allowed to state to existing or potential employers and sports and volunteer organizations that you have not been arrested or convicted of a felony offense.
  • Second, the district attorney, arresting agency, court clerk and Oklahoma State Bureau of Investigation will remove from public access any record of the arrest, prosecution and conviction.
  • Finally, you will have the peace of mind of knowing that your criminal records are wiped clean.


Contracts Are King, Or Are They? How the Case of Abercrombie & Fitch v. Penn Square Mall Effects The Commercial Leasing Landscape

March 18th, 2020

The commercial real estate leasing industry is notable in the extent to which business terms and legal obligations are memorialized in great detail in written contracts.  The exclusive use of written agreements is driven by the subject of the contracts, i.e., real estate, complexity of designing an agreement that may remain in effect for many years, and the potentially conflicting interests and incentives of the landlord and tenant. Perhaps few industries are as awash in standardized contract forms and boilerplate terms like the real estate industry.

It is understandable and appropriate for commercial landlords and tenants to focus their attention on the important task of memorializing their agreements about known issues such as the allocation of risk of potential unknown factors such as damages for water leaks, and other casualty and force majeure events.  In the event of a dispute, the contract is meant to be the determinant of who bears the risk of loss.  However, the parties should not lose sight of the fact that their legal rights and remedies are not based solely on the agreements they may have signed.

In addition to agreement-based rights and obligations, Oklahoma “tort” law imposes all sorts of implied rights and obligations independent of what parties may have formally agreed to.  The foremost “tort” obligation is to use reasonable care so as to avoid damage to others.  The failure to use reasonable care is negligence.

Because of the dominance of formal contracts in the commercial real estate leasing industry, courts in other jurisdictions historically were reluctant to recognize the applicability of tort remedies on commercial contracts. The philosophy was that parties were expected to define their obligations in the written agreements that would be the sole determinants of their rights.

One party could not sue another outside of contract for negligence if the harm was merely economic and the duty arose from the contractual relationship. The recent case of Abercrombie & Fitch v. Penn Square Mall, 2018 OK CIV APP 56, 425 P.3d 757 (Okla. Ct App. 2018), however, teaches commercial landlords and tenants that Oklahoma courts will permit the pursuit of both contractual and negligence theories for economic losses. This case emphasizes the serious risk of claims and damages outside the scope of the parties’ carefully negotiated contracts.

Abercrombie & Fitch v. Penn Square Mall, arose from a water leak in a roof drain line running above the ceiling of the leased premises in Penn Square shopping mall. Abercrombie & Fitch, the tenant, filed suit against Penn Square Mall LP alleging Penn Square “had a contractual duty to maintain the mall’s plumbing lines in good order, condition, and repair,” and that Penn Square breached this duty. Abercrombie asserted theories of breach of contract and negligence against Penn Square, and asserted that as a result of the water leak it “incurred substantial damages in cleanup, repair, lost merchandise, lost profits, and interruption to its business,” and sought damages in excess of $300,000. Despite the existence of a commercial lease with a limitation of liability clause, the case went to trial for damages under both contract and negligence theories.  At trial, the tenant was awarded nothing at all for its breach of contract claims, but the jury awarded $243,000 in lost profits, cleanup, repair, lost merchandise, and interruption to its business on the negligence claim. 

The landlord appealed, arguing that the tenant should not have been able to pursue damages for both breach of contract and negligence, and that the lease contract had a clause waiving such consequential damages.  However, the appeals court ruled that the language of the consequential damages limitation in the contract could reasonably be interpreted to relate only to the tenant’s contractual claims and not its negligence claims.  Therefore, the tenant’s judgment for lost profits, cleanup, repair, lost merchandise, and interruption to its business on the negligence claim was upheld.

Abercrombie & Fitch v. Penn Square Mall is a good reminder that commercial landlords and tenants must consider the extra-contractual risks and remedies under Oklahoma tort law.  As the court in Abercrombie found, a waiver of consequential damages provision, depending upon its wording, may only protect against contractual claims, not negligence claims.  Notice and other procedures may be interpreted to relate to contractual claims unless the contract explicitly includes the full universe of claims—both contractual and non-contractual.

The issue of extra-contractual claims can also arise in the context of determining the scope of an arbitration clause.  If an arbitration clause is drafted narrowly to encompass claims arising under the contract, it may not be broad enough to include negligence claims related to the leased premises and the parties’ relationship as a whole.  Absent unusual situations, care should be taken to ensure that the arbitration scope broadly covers all claims that might arise, not just contractual claims.

A good contract will recognize and address the possibility that parties may resort to tort remedies.  That way, the contract will retain its primacy in governing the rights and obligations of commercial real estate landlords and tenants. To anticipate this problem, the drafter should include language in the contract to this effect: “The parties agree that, regardless of the failure of the sole and exclusive remedy, landlord will not be liable for any consequential damages of whatsoever kind or nature.”


The Federal Protecting Tenants at Foreclosure Act is Permanent

October 5th, 2019

The Protecting Tenants at Foreclosure Act of 2009 expired on December 31, 2014. Now it is back and it is permanent. The law limits the rights of new owners of foreclosed properties from evicting tenants after a foreclosure, and was passed as a result of widespread hardships after the collapse of the mortgage markets. By 2014, it was felt that such protections were no longer necessary. But the law has been revived. On May 24, 2018, President Trump signed into law a bill which contained major rollbacks to the Dodd Frank Act. It ALSO revived the Protecting Tenants at Foreclosure Act of 2009 and makes it permanent.

Tenants cannot be evicted after a foreclosure, and can stay until the expiration of their lease term. The only exceptions are if the rent is dramatically below market (whatever that means) or if the tenant is closely related to the borrower. It provides protections to bona fide tenants in foreclosed properties where the foreclosed mortgage is a “federally related mortgage loan” (a very broad category of mortgage loans as defined in the federal Real Estate Settlement Procedures Act (“RESPA”)). An amended version of the Tenants Protection Act is available here.  A sample letter for tenants and advocates to use to implement the Tenants Protection Act is available here.

Are Commercial Loans Covered?

An important question for lenders, mortgage holders and servicers is whether the Tenants Protection Act is limited to residential one- to four-family mortgage loans, or whether commercial loans are covered.  The answer is that some commercial loans are covered; where a loan is made to an individual or entity to purchase or improve property which is one- to four-family residential property, the Tenants Protection Act provisions for notice and eviction must be followed, even if the borrower took the applicable mortgage loan for a commercial purpose.  Commercial purpose loans that meet the definition of “federally related mortgage loans” must comply with the Tenants Protection Act.

A “federally related mortgage loan” is any loan (other than a temporary loan such as a construction loan), which is secured by a first or subordinate mortgage on real property that is designed to be a one- to four-family residential property (including condominiums and manufactured homes), and the property has to be located in a U.S. state.  Refinancings and purchase money mortgages are included.  The mortgage loan (1) must be made by a lender that is either federally regulated or its deposits are insured by the Federal Government; (2) is insured, guaranteed or supplemented by the Federal Government; (3) is made in conjunction with programs administered by HUD or by another federal agency; (4) is intended to be sold to Fannie Mae, Ginnie Mae or Freddie Mac; (5) is made by a “creditor” as defined by the Consumer Credit Protection Act (15 USC §1602(f)) and that creditor makes or invests in $1,000,000 worth of residential real estate loans per year; (6) is a reverse mortgage made by one of the aforementioned lenders; (7) is an installment sales contract for residential one- to four-family residential property.

Protecting Tenants at Foreclosure Act of 2009 Basics

As a refresher, the Tenants Protection Act requires immediate successors in interest to foreclosed properties, including banks that take title to property after foreclosure, to provide a notice to vacate to any bona fide tenant at least ninety (90) days prior to evicting those tenants as a result of foreclosure.  In the event a foreclosure does take place, the Tenants Protection Act requires the successor owner of foreclosed property to honor any existing leases with renters until the end of the lease terms.  Protection is not available for the former mortgagor, the mortgagor’s spouse, child or parent.  A “bona fide” lease is the result of an arm’s-length transaction, and the rent has to be fair market value or government subsidized.  The Tenants Protection Act also provides Section 8 tenants in foreclosed properties certain protections.

Dodd-Frank Clarifies When Prior Notice of Foreclosure Occurs

A major change in the Tenants Protection Act brought about by Dodd-Frank concerns the interpretation of the provision that allows bona fide tenants of foreclosed properties to continue to reside at the property for the remaining term of the lease executed with the former owner only if that lease was entered into “as of the date of foreclosure”.  Prior to the amendment found in Dodd-Frank, it was unclear when the “date of foreclosure” occurred.  If the cut-off period began when foreclosure notices were sent, borrowers and tenants could no longer enter into leases that would have to be honored once the foreclosure notices were mailed and advertised.  Thus, under the prior version of the Tenants Protection Act, a foreclosing owner would take the position that leases entered into AFTER the date the foreclosure notice was mailed were not effective, and the foreclosing owner would not have to honor those leases.

Dodd-Frank changes all that by clarifying the phrase and explaining “For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust or security deed.”    Unfortunately, ambiguity remains.  While Dodd-Frank clarifies that “notice of foreclosure” does not mean any correspondence or advertising undertaken by the mortgagee leading up to the foreclosure sale, it leaves the post-foreclosure timeframe unclear.  Put more simply, Dodd-Frank shifts the ambiguity from pre-foreclosure sale to post-foreclosure sale.  This is due to the use of the term “complete” in the new definition, i.e., what does “complete title” mean?

Debate is already underway as to whether “complete title to a property is transferred to a successor” occurs at the time of the foreclosure sale or at the time of recording of the foreclosure deed.   In Bankruptcy Courts, Judges who have opined on the issue of when the foreclosure sale is final from a bankruptcy perspective find that the foreclosure is final when the gavel goes down completing the auction, and the purchase and sale agreement is executed by the buyer.  On the other hand, there is an argument that the buyer at foreclosure who tenders a deposit and signs the purchase agreement only has equitable title; no legal title passes until the foreclosure deed is tendered to the buyer.  Still another interpretation is made by the foreclosing owner who seeks to evict any holdover borrowers or tenants from the property after foreclosure.  Post-foreclosure property owners are going to have to watch out for borrowers and mortgagors whose properties are in the process of foreclosure, as they could enter into lease agreements with tenants AFTER the foreclosure sale date, but before the foreclosure deed goes on record, and the foreclosing owner would be required by law to honor those lease and tenancy agreements.

In sum, post-foreclosure property owners must give ninety (90)-day pre-eviction notices to bona fide tenants, but the date on which that notice has to be given will now be later in the process — on or after the date the foreclosure deed is recorded.  Ninety (90)-day notices sent on behalf of the servicer during the foreclosure process will no longer satisfy the Tenants Protection Act.  Post-foreclosure property owners should do everything they can to ensure that foreclosure deeds are recorded expeditiously after a foreclosure sale to cut off the rights of mortgagors from entering into new lease agreements with bona fide tenants so that the new owner does not have to contend with honoring the terms of those new lease agreements.

Further, since bona fide leases survive the foreclosure until the end of their term, the tenants have state law based remedies for violations of the tenants’ rights against successors in interest in foreclosed properties. Nativi v. Deutsche Bank National Trust Company, 223 Cal. App. 4th 261 (2014).

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