Bona Fide Tenancies for a Term Remain Protected

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A recent California Court of Appeals decision determined that the federal Protecting Tenants Against Foreclosure Act (“PTFA”) impliedly overrides state laws that provide less protection to tenants, but expressly allows states to retain the authority to enact greater protection.  The PTFA was enacted by Congress in May 2009 (Pub.L. 111-22, Div. A, Title VII, §§ 702-704, May 20, 2009, 123 Stat. 1660) and, in 2010, the Congress amended it (Pub.L. 111-203), Title XIV, § 1484, July 21, 2010, 124 Stat. 2204).  The PTFA provides protections for bona fide tenants of residential real property at foreclosure until the PTFA is scheduled to sunset at the end of 2014.

The California Court of Appeals decision establishes that a lease survives foreclosure through the lease term (except under limited circumstances), and allows tenants to bring state law claims for violation of the federal law.  Nativi v. Deutsche Bank Nat’l Trust Co., — Cal. Rptr. 3d —, No. H037715, 2014 WL 255587 (Cal. Ct. App. Jan. 23, 2014).

In Nativi, tenants Rosario Nativi and her son (the “Tenants”) were displaced from a rental property’s converted garage unit (which they had been renting for years), subsequent to a nonjudicial foreclosure sale of residential property.  At the time of the foreclosure, the Tenants’ lease provided for an additional ten months of occupancy.  The Tenants brought action against the bank owner and loan servicer, alleging wrongful conviction in tort, breach of the covenant of quiet enjoyment, breach of the implied covenant of quiet enjoyment, illegal entry of landlord, illegal lockout, unfair business practices, conversion, and trespass, and sought declaratory and injunctive relief.  The trial court ruled against the Tenants on summary judgment, finding that the foreclosure sale extinguished the lease under California law.  As such, the trial court determined that the immediate successor in interest did not step into the shoes of the landlord, and that the federal PTFA merely required the successor in interest “to give a 90-day notice to vacate the premises . . . and it imposed no affirmative duty [on the successor in interest] to assist such tenants in recovering possession of the leased premises.”

Upon appeal, the California Sixth Circuit confronted the “difficult questions regarding the proper interpretation of the PTFA and the potential liability of an immediate successor in interest in foreclosed residential property for breach of the implied covenant of quiet enjoyment and wrongful eviction under California law.”  The appellate court concluded:

[S]olely as a matter of statutory interpretation . . . the PTFA causes a bona fide lease for a term to survive foreclosure through the end of the lease term subject to the limited authority of the immediate successor in interest to terminate the lease, with proper notice, upon sale to a purchaser who intends to occupy the unit as a primary residence.

Thus, for at least the next ten months—until the PTFA sunsets at the end of 2014—bona fide tenancies for a term that continue by operation of the PTFA remain protected in California, subject only to a purchaser that intends to occupy the property as a primary residence.