This article courtesy of real estate attorney Scout Souders.
- After Foreclosure Sale Trustee’s Deed Upon Sale Does Not Need To Be Recorded Prior To Serving Notice To Quit.
In the case of Dr. Leevil, LLC vs. Westlake Healthcare Ctr.  9 Cal App 5th 450 the Appellate Court held that a notice to quit was not premature even though the new owner, who received title at a foreclosure sale, had not recorded a Trustees Deed yet.
In this case the defendant was a medical center who had a Lease in a medical building. The Lease had an automatic subordination clause and a permissible subordination clause as well.
The Lessor took out a loan from Tomato Bank secured by a Deed of Trust. The Lessor defaulted on the loan. Tomato Bank sold the loan to Plaintiff. Plaintiff obtained relief from the Bankruptcy Stay and filed a foreclosure. Plaintiff subsequently purchased the facility with a full credit bid at the Trustees Sale. The following day the Plaintiff served Defendant with a notice to quit. Plaintiff recorded the Trustees Deed Upon Sale 5 days later. Defendant did not vacate the
building and Plaintiff sued for unlawful detainer. The trial court held that the lease was subordinate to the Deed of Trust and the notice to quit was valid despite being served before title was perfected by recording the Trustees Deed Upon Sale.
The Appellate Court affirmed. The bank’s position was fixed by the automatic Subordination clause and the Trustees Sale extinguished the lease. Therefore, a notice to quit was not premature. CCP 1161a(b)(3) requires title to be perfected before a tenant “may be removed” from the property. It does not require an owner to perfect title before service of a 3-Day Notice.
The filing of the complaint for unlawful detainer is the beginning of the action and the service of the complaint and summons on the tenant gives the court jurisdiction. The service of the notice to quit is only an element of the cause of action to be alleged and proven at trial.
Comment: There have been numerous times I have seen a tenant sign a Lease that has an automatic subordination provision in the Lease. What this does is subordinate the Lease to any future financing the owner of the building obtains. Since we are a res notice state the foreclosure on a Deed of Trust in first position will extinguish all matters subordinate on title including Leases. This could be very unfortunate if the tenant spent hundreds of thousands of dollars in tenant improvements and is forced to then renegotiate a new Lease at a much higher rate or vacate the premises.
- Judgment In Favor of Borrower Against Lender Who Charges Usurious Interest May Be Offset Against Principal Debt.
In the case of Hardwick vs. Wilcox, California Court of Appeal 1st District A147944, May 22, 2017, the Court of Appeal held that the protections of the usury law cannot be “waived by the voluntary payment of excess interest by the borrower”.
Over the course of 10 years Wilcox made a series of loans to Hardwick that were evidenced by 9 Promissory Notes. Hardwick sued Wilcox to recover the usurious interest paid over the past 10 years. Wilcox filed a cross complaint for breach of contract and judicial foreclosure. The trial court found that Hardwick had not waived his usury claim by entering into a forbearance agreement that contained a wavier of usury violations. Construing the release from the forbearance agreement as a waiver of usury would violate public policy. Thus Wilcox’s arguments were rejected.
The trial court found that Hardwick had paid $227,235.83 in usurious payments. The trial court allowed this sum to be offset against the principal amount of the loans.
Finally, Wilcox argued that Hardwick’s claims were barred by the two year statute of limitations per CCP 339. However, the cause of action to recover usurious interest does not accrue until the debtor actually pays excess interest. Since payments on a usurious note are deemed to apply first to principal, the statute of limitations does not begin to run until the debtor has paid the entire principal amount of the debt. Citing Garver vs. Brace  47 Cal App 4thIn other words, no part of the usurious payment is barred by the statute of limitations as long as the usurious loan remains unpaid. Citing Forte vs. Nolfi  25 Cal App 3rd 656.
Comment: Wilcox was using his IRA money to fund loans to Hardwick. Wilcox got greedy. It cost him not only $227,000.00, but lots of money in attorney’s fees.
Scott Souders is a real estate attorney who has practiced real estate law in excess of 40 years in Southern California.
Disclaimer: The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.