CHIN, J. —
In this case, we decide a procedural question related to the timing of the notice that must precede an unlawful detainer action, where the action is not brought by a landlord but rather by a new owner that has acquired title to the property under a power of sale contained in a deed of trust. The
Westlake Village Property, L.P. (Westlake Village), owned property in Thousand Oaks that it leased in 2002 to defendant Westlake Health Care Center (Westlake Health) so the latter could operate a skilled nursing facility on the property. Six years later, Westlake Village obtained a bank loan, executing a promissory note and a deed of trust on the property (the latter to secure the promissory note). After Westlake Village defaulted on the loan, the bank sold the promissory note and the deed of trust to Dr. Leevil, LLC (Dr. Leevil), plaintiff in this action. Dr. Leevil then instituted a nonjudicial foreclosure and bought the property at a trustee's sale. The next day, Dr. Leevil served a three-day written notice to quit upon the property's tenant, Westlake Health, and five days after that, Dr. Leevil recorded title to the property. Westlake Health did not vacate the property, and Dr. Leevil initiated this unlawful detainer action 40 days after service of the written notice to quit.
Proceedings in the trial court ended in a judgment against Westlake Health, based on stipulated facts, with Westlake Health preserving its right to appeal various legal rulings of the court. On appeal, the Court of Appeal affirmed. (Dr. Leevil, LLC v. Westlake Health Care Center (2017) 9 Cal.App.5th 450 [215 Cal.Rptr.3d 127], review granted June 14, 2017, S241324.) Among other things, the Court of Appeal concluded that, under Code of Civil Procedure section 1161a, subdivision (b) (section 1161a(b)), an owner that acquires title to property under a power of sale contained in a deed of trust need not perfect title before it serves a three-day written notice to quit on the possessor of the property. Instead, the Court of Appeal concluded that the new owner may serve the notice to quit immediately after acquiring ownership, after which it may perfect title, so long as title is perfected before the new owner files an unlawful detainer action. (9 Cal.App.5th at pp. 455-457.) In reaching that conclusion, the Court of Appeal expressly disagreed with the Appellate Division of the San Diego County Superior Court, which addressed the same issue in U.S. Financial, L.P. v. McLitus (2016) 6 Cal.App.5th Supp. 1 [211 Cal.Rptr.3d 149] (McLitus). (9 Cal.App.5th at p. 455.) Because Dr. Leevil perfected title before initiating this unlawful detainer action, although not before serving the notice to quit, the Court of Appeal concluded that the action complied with section 1161a(b). (9 Cal.App.5th at p. 457.)
Second, the sale of the property in question is only one of three distinct conditions set forth in section 1161a(b)(3), and the use of the conjunctive word "and" to connect the three conditions can only mean that all three conditions must be satisfied. In other words, all three conditions of section 1161a(b)(3), including perfection of title, were prerequisites to Dr. Leevil having any right to the remedy section 1161a(b) affords. And in this context, perfection of title requires that the instrument of conveyance (the trustee's deed) be recorded pursuant to Government Code section 27280. As the Court of Appeal explained in Kessler v. Bridge (1958) 161 Cal.App.2d Supp. 837 [327 P.2d 241], "[t]itle is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt ... [citation], which includes good record title [citation], but is not limited to good record title, as between the parties to the transaction.... The court in an unlawful detainer [action] ... has jurisdiction to determine the validity of such defenses." (Id. at p. 841, italics added.) Because one of the conditions set forth in section 1161a(b)(3) is that "title under the sale has been duly perfected," Dr. Leevil was not entitled to a section 1161a(b) remedy until it first perfected title, which required, among other things, that the instrument of sale (the trustee's deed) be recorded. That being so, the most natural reading of the statute
The Court of Appeal rejected the foregoing reading of section 1161a(b) because it did not focus on the statute's structure. As noted, section 1161a(b) opens with the phrase "[i]n any of the following cases," and it enumerates five separate situations, one of which must be satisfied before the substantive provision of the statute has any operative effect. The Court of Appeal ignored that structure, instead construing the statute as if the opening phrase were omitted and as if the requirements of section 1161a(b)(3) merely qualified the words "may be removed." (§ 1161a(b).) Based on that reading, the Court of Appeal concluded that a holdover possessor of real property "may be removed" (§ 1161a(b)) only after section 1161a(b)(3) is satisfied, but the three-day written notice to quit may be served before section 1161a(b)(3) is satisfied, because the three-day notice does not, by itself, remove the property's possessor. (Dr. Leevil, LLC v. Westlake Health Care Center, supra, 9 Cal.App.5th at pp. 456-457, review granted.) In so concluding, the Court of Appeal failed to discern the most natural reading of section 1161a(b).
Dr. Leevil argues that the perfection of its title — which occurred six days after the sale — was retroactive to the original sale date under Civil Code section 2924h, subdivision (c) (section 2924h(c)). Section 2924h(c) governs the means by which payment can be made at a trustee's sale, and it expressly permits the trustee to withhold the trustee's deed until the funds constituting the purchase price become available to the payee. It provides: "In the event the trustee accepts a check drawn by a credit union or a savings and loan association pursuant to this subdivision or a cash equivalent designated in the notice of sale, the trustee may withhold the issuance of the trustee's deed to the successful bidder ... until funds become available to the payee or endorsee as a matter of right. [¶] For the purposes of this subdivision, 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 ...." (§ 2924h(c), italics added.)
The purpose of section 2924h(c) is clear from its text. A bidder at a trustee's sale might present a check for the purchase price of the property, but whether the bank account on which the check is drawn contains sufficient
Dr. Leevil argues that it recorded title just six days after the date of the sale, and therefore, under section 2924h(c), the sale is "deemed perfected" as of the original sale date. Hence, Dr. Leevil should be deemed to have perfected title for purposes of section 1161a(b) before it served the three-day written notice to quit on Westlake Health.
Moreover, as the appellate division noted in McLitus, the apparent policy aims of the statute support an inference that the Legislature intended that a new owner of real property should perfect title before serving a three-day written notice to quit on the possessor of the property. In cases where the possessor of the property is a tenant of the former owner, not the former owner itself, the tenant may not know whether the entity serving the notice to quit is a bona fide owner. Thus, section 1161a(b)'s requirement that the new owner perfect title before serving a notice to quit protects the interests of such a tenant. As the appellate division stated in McLitus: "[Plaintiff's] interpretation ... would suggest that a post-foreclosure plaintiff could routinely prematurely issue a three-day notice ... [,] [a]nd ... such a practice would practically prevent a defendant from effectively verifying the identity of the alleged purchaser of a property[,] as a search of recorded
As the McLitus court explained, Dr. Leevil's statutory interpretation would put a tenant in a precarious position. A tenant would be forced to choose between vacating the property without assurance that title will ever actually be perfected or remaining in possession of the property and potentially incurring damages as a holdover tenant if title is, in fact, perfected. In the first scenario, if the successful bidder at the trustee's sale fails to pay the purchase price, the sale could be rescinded, in which case the tenant vacated the property unnecessarily. In the second scenario, the tenant could be liable for damages that exceed the rent specified in the tenant's lease. (See Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1069 [241 Cal.Rptr. 487].) Our conclusion that a new owner must perfect title before serving a three-day written notice to quit eliminates these uncertainties by allowing the tenant to verify title during the three-day notice period. It thus effectuates the purposes of section 1161a(b), protecting the tenant's interests without excessively burdening the new owner.
In response to the foregoing reasoning, the Court of Appeal asserted: "Westlake Health was free to challenge [Dr.] Leevil's claimed ownership in court. (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1010 [198 Cal.Rptr.3d 715] [title can be litigated in a § 1161a unlawful detainer action].)" (Dr. Leevil, LLC v. Westlake Health Care Center, supra, 9 Cal.App.5th at p. 456, review granted.) On this point, the Court of Appeal was misleading. Orcilla and the cases on which it relies establish only that Westlake Health could use the unlawful detainer action to litigate whether Dr. Leevil "`acquired the property at a regularly conducted sale and thereafter "duly perfected" [its] title.'" (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1011 [198 Cal.Rptr.3d 715], quoting Vella, supra, 20 Cal.3d at p. 255.) The unlawful detainer action did not permit Westlake Health to litigate every possible issue related to Dr. Leevil's claim of ownership. "Matters affecting the validity of the trust deed or primary obligation itself, or other basic defects in the plaintiff's title, are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment." (Cheney v. Trauzettel (1937) 9 Cal.2d 158, 160 [69 P.2d 832]; see Vella,
Therefore, Westlake Health's ability to challenge Dr. Leevil's claim of ownership was limited, and the Court of Appeal erred in suggesting otherwise. And more generally, if the cloud on a new owner's title concerns an issue that cannot be litigated in an unlawful detainer action, and if, as the Court of Appeal concluded, a new owner can serve a three-day written notice to quit before perfecting title, then a holdover possessor of the property would have no choice but to vacate the property upon receipt of the notice. It is possible, however, that the cloud on the title would prevent the title from ever being perfected, in which case the holdover possessor would have vacated the property unnecessarily. Therefore, a rule requiring a new owner to perfect title before serving its three-day notice would avoid the imposition of possibly unnecessary relocation expenses on the possessor of the property.
Dr. Leevil argues that such a rule will lead to a delay ranging from several days (in a typical case) to several weeks (in a less typical case) and that the delay will increase the new owner's "carrying charges" (i.e., interest payments on debt, property taxes, insurance, etc.), which will increase the damages that a holdover possessor of the property will owe once the new owner prevails in an unlawful detainer action. (See Code Civ. Proc., § 1174, subd. (b).) In the case of a large commercial property, a delay of a week or two might increase damages significantly. Dr. Leevil argues that this increase in damages will increase the number of unlawful detainer actions that can be filed as "unlimited civil cases" — cases, that is, where the amount in dispute exceeds $25,000 (see Code Civ. Proc., § 86, subd. (a)(4)) — thus "clogging the court system." We are not persuaded by the argument. As an initial matter, we doubt that a significant number of unlawful detainer cases will shift, as a result of our decision, from limited civil cases to unlimited civil cases (Code Civ. Proc., § 88). In the typical case, the far greater proportion of the amount in dispute will likely depend on when the unlawful detainer action is filed, as opposed to when the three-day written notice to quit is served. Here, for example, Dr. Leevil perfected title five days after service of the notice to quit, but it did not initiate this unlawful detainer action until a month later, and during that time damages continued to mount. In any event, our task is to read the statute as written, and for reasons already explained, we read the statute as calling for title to be perfected before the three-day notice is served.
Cantil-Sakauye, C. J., Corrigan, J., Liu, J., Cuéllar, J., Kruger, J., and Peña, J.,