The First Appellate Court overturned the Santa Clara Superior Court and held that a bona fide lease survives a foreclosure. In Nativi v. Deutsche Bank, the Court found that the federal statute, Protecting Tenants Against Foreclosure Act of 2009 (“PTFA”), trumped state law and protected a lease from being wiped out in a foreclosure sale. As the name suggests, PTFA is a law that was designed to protect tenants after a foreclosure by allowing legitimate leases to survive the foreclosure.
Rosario Nativi and her son began renting a converted garage unit in Sunnyvale that was located at the back of the property that had another tenant in the main house. Every year since 2007, Nativi signed a new lease with the owner of the property. In 2009, the property was foreclosed and Deutsche Bank took ownership of the house. Upon taking ownership, agents of Deutsche visited the home and gave notice of the foreclosure sale and attempted to make a cash for keys arrangement with the tenants of the main house. Unfortunately for Nativi, at the time of the foreclosure, Nativi and her son were out of the state and did not return until some time later, long after the initial cash for keys agreement was reached with the other tenants. By the time they returned, they found their belongings had been removed from their unit and they were no longer allowed access to their home. At one point, police were called and Nativi and her son were asked to leave the premises.
This case actually was heard by two lower courts. Upon Deutsche’s refusal to allow Nativi back on the property, Nativi sued to regain possession of her apartment. In her suit, Nativi alleged violations of PTFA. Because the PTFA is federal law, Deutsche removed the case to federal court. At the federal level, the court found that PTFA did not give a tenant an affirmative right to sue and could only be used to defend against a suit. Since PTFA was the only federal claim, the federal court sent the case back to the state court. The state court found that PTFA did not protect a lease from being wiped out at a foreclosure sale and without a lease, the Nativi’s did not have any viable claims. On appeal, the appellate court reversed and found that PTFA in fact protected a lease from being wiped out at a foreclosure sale. The court found that the legislative intent and history showed that the plain reading of the statute required a lease to survive a foreclosure sale regardless of contrary state law. Further, it would be meaningless to say that a tenant had a right to possession of a property but did not have a lease. Finally, the appellate court noted that since the time this case initially went to trial, the California legislature had amended state law to more closely mirror PTFA and now protects a lease from being wiped out at a foreclosure sale.
This decision seems to be somewhat obvious – the plain reading of PTFA is that a bona fide lease survives a foreclosure sale. The appellate court has provided clarity that now both state and federal law will protect bona fide tenants from foreclosures. It is important to note that under both statutes, a fixed term lease must be in place or the tenant does not have this protection.
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