Lease for illegal unit is enforceable?
As summarized by T. Robert Finlay, Esq., Wright, Finlay & Zak, UTA’s Legislative Committee Chair; “The problematic implications of this decision cannot be overstated. The new owners of a foreclosed rental property risk being stuck with a lease for years, and may have to honor a term such as an option to purchase. Additionally, if the lease was prepaid, the new owner may not even receive any rent throughout the duration of the lease term. To top it off, all of this may come as a complete surprise to the new owner, who may not have any notice of the leasehold interest. In addition to the negative impact on the foreclosure industry, the decision will lead to countless new lawsuits by former tenants, as well as suits by third-party purchasers alleging that the foreclosing lenders knew or should have known about the existence of the lease prior to foreclosing and thus, should have disclosed the lease to prospective bidders at the foreclosure sale. This last issue directly impacts the trustee world as them may get dragged into suits against the beneficiary for not disclosing known leases at the foreclosure sale.”
In UTA’s letter, drafted by the Association’s Corporate Counsel, Phillip Adleson, Esq., Adleson, Hess & Kelly, UTA noted that with its current interpretation, the Court substantially impaired all senior deeds of trust entered into prior to January 1, 2013 which will have a destabilizing effect on the mortgage and lending industry in California.