Nativi v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 23 January 2014
• Docket Number: H037715
• Court: California Court of Appeals Court of Appeals
• Parties: ROSARIO NATIVI et al., Plaintiffs and Appellants, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, et al., Defendants and Respondents.

ROSARIO NATIVI et al., Plaintiffs and Appellants, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, et al., Defendants and Respondents.

H037715

COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT

Filed: January 23, 2014

CERTIFIED FOR PUBLICATION

(Santa Clara County

Super. Ct. No. CV158254)

In May 2009, the United States Congress enacted the Protecting Tenants Against Foreclosure Act of 2009 (PTFA or Act) (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).¹ The Act provides protections for bona fide tenants of residential real property at foreclosure following the date of its enactment until its sunset at the end of 2014. (PTFA, §§ 702, 704.)

Subsequent to a nonjudicial foreclosure sale of residential property in August 2009, tenants Rosario Nativi (Nativi) and her son Jose Roberto Perez Nativi (hereinafter Jose Perez or Perez) were displaced from the property's converted garage unit, which they had been renting for several years. At the time of the foreclosure sale, appellants' operative lease provided for a one-year term through June 1, 2010. Deutsche BankNational Trust Company as Trustee for American Home Mortgage Assets Trust 2007-5 Mortgage-Backed Pass-Through Certificates, Series 2007-5 (Deutsche Bank or Bank) was the beneficiary under the deed of trust and the purchaser at the foreclosure sale. Appellants sued respondents Deutsche Bank National Trust Company (in its nontrustee capacity), Deutsche Bank (as trustee), and American Home Mortgage Servicing Inc. (AHMSI).

The trial court granted respondents' motion for summary judgment based on its determination that the foreclosure sale extinguished the lease under California law and, therefore, the immediate successor in interest did not step into the shoes of the landlord. The court concluded that the federal PTFA merely required the Bank, as the immediate successor in interest, to give a 90-day notice to vacate the premises to appellants and it imposed no affirmative duty on the Bank to assist such tenants in recovering possession of the leased premises. The court further found that appellants could not establish that the Bank excluded them from the property or put their belongings in the backyard.

Appellants now challenge the trial court's interpretation of the PTFA. They assert that the Act created a landlord-tenant relationship between the Bank and them for the duration of their lease. The appeal raises difficult questions regarding the proper interpretation of the PTFA and the potential liability of an immediate successor in interest in foreclosed residential real property for breach of the implied covenant of quiet enjoyment and wrongful eviction under California law. The parties have not raised any contention regarding the validity of the PTFA or asserted that Congress exceeded its authority in enacting it. An amicus curiae brief was filed on behalf of the National Housing Law Coalition, National Law Center on Homelessness and Poverty, the AARP, the National Fair Housing Alliance, and the California Reinvestment Coalition in support of appellants. The American Legal and Financial Network filed an amicus curiae brief that supports respondents' position.

After careful and extensive consideration, this court concludes, solely as a matter of statutory interpretation, that 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. The Act impliedly overrides state laws that provide less protection but expressly allows states to retain the authority to enact greater protections. Bona fide tenancies for a term that continue by operation of the PTFA remain protected by California law.

We conclude that the trial court's analysis was mistaken and respondents were not entitled to summary judgment. Accordingly, the judgment will be reversed.

Appellants also challenge the trial court's order granting respondent AHMSI's motion for a protective order. We find the order was not within the trial court's discretion and reverse.

IProcedural History

On November 25, 2009, appellants Nativi and Perez filed a complaint against Deutsche Bank National Trust Company, its assigns and successors, and Does 1 to 10 for "restitution of premises," compensatory and punitive damages, and injunctive relief. The complaint alleged eight causes of action as follows: (1) wrongful eviction in tort, (2) breach of the covenant of quiet enjoyment, (3) breach of implied covenants of quiet enjoyment-tort, (4) illegal entry of landlord (violation of Civ. Code, § 1954), (5) violation of Civil Code section 1940.2, (6) illegal lockout (violation of Civ. Code, § 789.3), (7) violation of the PTFA, and (8) unfair business practices (Bus. & Prof. Code, § 17200).

On December 31, 2009, Deutsche Bank National Trust Company filed a Notice of Removal that it was removing the action to federal court.

The United States District Court, Northern District of California subsequently determined that, by enacting the PTFA, "Congress did not intend to create a private right of action remedy, but rather intended to provide tenants additional rights which could be used in state court proceedings." (Nativi v. Deutsche Bank Nat. Trust Co. (N.D. Cal. May 26, 2010, No. 09-06096 PVT) 2010 WL 2179885, 4.) The court dismissed the seventh cause of action (violation of the PTFA) (id. at pp. 1, 4-5) and "decline[d] to exercise supplemental jurisdiction over the remaining state law claims" and remanded the matter to the Superior Court of California, County of Santa Clara. (Id. at p. 5.)

On July 1, 2010, appellants filed a first amended complaint, which alleged additional causes of action. Deutsche Bank National Trust Company demurred to the first amended complaint on a number of grounds, most of which were overruled. The trial court struck the seventh cause of action (violation of the PTFA) because the federal court had dismissed it before remanding the case.

On December 3, 2010, appellants filed a second amended complaint against Deutsche Bank National Trust Company, Deutsch Bank (as trustee), and AMHSI and Does 3-10. It alleged nine causes of action against the named defendants: (1) wrongful eviction in tort, (2) breach of the covenant of quiet enjoyment, (3) breach of implied covenants of quiet enjoyment-tort, (4) illegal entry of landlord (violation of Civ. Code, § 1954), (5) illegal lockout (violation of Civi.Code, § 789.3), (6) unfair business practices (Bus. & Prof. Code, § 17200), (7) conversion, (8) trespass, and (9) declaratory and injunctive relief (Code Civ. Proc., §§ 526 & 1060). Respondents filed an answer to that complaint.

In April 2011, respondents filed a motion for summary judgment, supporting declarations, and a separate statement of undisputed material facts. They requested judicial notice of the Trustee's Deed Upon Sale, recorded August 12, 2009, in the Santa Clara County Recorder's Office and appellants' second amended complaint.

By order filed June 21, 2011, the court accepted the parties' written factual stipulations for the purposes of all further proceedings in the case.

Appellants filed opposition to respondents' motion for summary judgment, a separate statement of undisputed facts, and supporting declarations. They filed written evidentiary objections to the evidence submitted by respondents in support of summary judgment.

By written order filed November 15, 2011, the trial court granted respondents' motion for summary judgment. The trial court concluded that, under California law, the foreclosure sale extinguished the lease and, consequently, Deutsche Bank did not step into the shoes of the former landlord. It also determined that the obligation to give a 90-day notice was the "only burden" imposed on the Bank by the PTFA.

A judgment in favor of respondents and against appellants was filed on November 15, 2011.

By separate written order, also filed on November 15, 2011, the court granted respondent AHMSI's motion for a protective order with respect to certain documents that the court had ordered it to produce.

On December 13, 2011, appellants filed a notice of appeal from the judgment and from the order granting the motion for a protective order.

IICalifornia Law Background and the Federal PTFA

A. Effect of Foreclosure on Preexisting Tenancy Under California Law

1. Traditional Property Law

"Title conveyed by a trustee's deed relates back to the date when the deed of trust was executed. (Bank of America v. Hirsch Merc. Co. (1944) 64 Cal.App.2d 175 . . . .) The trustee's deed therefore passes the title held by the trustor at the time of execution. (Hohn v. Riverside County Flood Control etc. Dist. (1964) 228 Cal.App.2d 605, 612. . . .)" (Dover Mobile Estates v. Fiber Form Products, Inc. (1990) 220 Cal.App.3d 1494, 1498 (Dover).) "The law is clear that the trustee's deed conveys to the purchaser the trustor's interest as of the date that the deed was recorded. (Dover Mobile Estates v. Fiber Form Products, Inc. (1990) 220 Cal.App.3d 1494, 1498 . . . ; Sain v. Silvestre (1978) 78 Cal.App.3d 461, 471 . . . ; Hohn v. Riverside County Flood Control etc. Dist. (1964) 228 Cal.App.2d 605, 612-613 . . . .)" (Homestead Savings v. Darmiento (1991) 230 Cal.App.3d 424, 437.)

"A lease is generally deemed to be subordinate to a deed of trust if the lease was created after the deed of trust was recorded. (Bank of America v. Hirsch Merc. Co., supra, 64 Cal.App.2d at p. 184 . . . ; Miller & Starr, Cal. Real Estate 2d; § 8:82, p. 422.)" (Dover, supra, 220 Cal.App.3d at p. 1498.) "Also, there is no dispute that the general rule is that foreclosure of a senior encumbrance terminates subordinate liens, including leases. (Hohn v. Riverside County Flood...