<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Originally posted by Sunny:
I just found a solicitation at my door from an attorney's office with regard to the owner's default in the mortgage payment and the initiation of foreclosure proceedings.
My lease ends in 7 months. What are my rights as a tenant with regard to the mortgage company? How long do I have to vacate the property and what happens to the deposit retained by the owner? Any suggestions?<HR></BLOCKQUOTE>
My response:
Happy to assist. Tracey is correct that the lease should be Recorded with the County Recorder's Office as an encumbrance on the Deed - - a "cloud on the title" as it were. That way, anyone foreclosing and then reselling, must deal with the Tenant, and enter into an "attornment agreement."
Nondisturbance and Attornment Agreements: Tenants are rightfully concerned that extinguishment of the greater estate under which they hold their interest will terminate their leasehold interest. For example, if the landowner were to lose its fee interest by foreclosure of a lien that is senior to the ground lease, the foreclosing lender will typically wipe out the ground lease, thereby extinguishing the tenant's interest. Subtenants are similarly concerned that their subleases would be extinguished upon a termination of the (master) ground lease, such as by a rejection of the primary lease in the sublessor's bankruptcy (11 USCA § 365(d)(4)).
To preserve tenant and subtenant leasehold interests, each can enter into a so-called "nondisturbance and attornment agreement"" (sometimes called a "subordination, nondisturbance and attornment agreement" or "SNDA") with the holder of the greater estate. Thus, a ground lease tenant would so agree with the holder of the deed of trust encumbering the fee interest (the fee mortgagee); and subtenants would so agree with the landowner (and, in some cases, the fee mortgagee as well).
Features of agreement: A nondisturbance and attornment agreement has two principal components:
(1) "Nondisturbance": The holder of the senior interest (landowner/prime lessor or fee mortgagee) agrees that, notwithstanding a default under or termination of the prime lease, or a foreclosure upon the senior estate, the junior estate (leasehold) will be recognized by the holder of the senior estate (prime lessor or fee mortgagee) and the tenant's (or subtenant's) right of possession will remain undisturbed. [See Chumash Hill Properties, Inc. v. Peram (1995) 39 Cal.App.4th 1226, 1233, 46 Cal.Rptr.2d 366, 369]
(a) Mortgagee/tenant agreements: In other words, pursuant to a nondisturbance agreement between a fee mortgagee and ground lease tenant, the fee mortgagee agrees that, upon foreclosure of its lien (deed of trust), it will nevertheless recognize the ground leasehold and tenant rights under the leasehold for so long as the tenant continues to comply with the terms of the lease and is not in default. [Miscione v. Barton Develop. Co. (1997) 52 Cal.App.4th 1320, 1327, 61 Cal.Rptr.2d 280, 285]
(b) Landlord/mortgagee agreements: A tenant may also be able to negotiate a provision in its lease requiring that the landlord obtain from its lender a nondisturbance agreement. This can often be accomplished by conditioning an attornment provision on receipt of the nondisturbance agreement. [See Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman (1998) 65 Cal.App.4th 1469, 1478, 77 Cal.Rptr.2d 479, 483]
(2) "Attornment": Under an attornment provision, the tenant agrees with the original landlord that, upon foreclosure, it will "attorn" to the property's new owner. [Miscione v. Barton Develop. Co. (1997) 52 Cal.App.4th 1320, 1326, 61 Cal.Rptr.2d 280, 284]
When a lease obligates a tenant to attorn to a new landlord in the event of foreclosure by a senior encumbrancer, the terms of the attornment provision govern how that is to occur and its effect on the existing lease. [Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman (1998) 65 Cal.App.4th 1469, 1478, 77 Cal.Rptr.2d 479, 483]
(a) Foreclosure purchaser as third party beneficiary of attornment clause: One common form of attornment clause requires the tenant to agree to enter into a new lease on the same terms with any successor landlord or, at the successor's option, to have the existing lease remain effective as a new lease between the tenant and successor. [Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman, supra, 65 Cal.App.4th at 1485-1486, 77 Cal.Rptr.2d at 488-489]
In this case, the tenant's existing lease is extinguished by the foreclosure, but the successor, as a third party beneficiary of the attornment clause, has the right to require the tenant to enter into a landlord-tenant relationship with the successor. [Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman, supra, 65 Cal.App.4th at 1485-1486, 77 Cal.Rptr.2d at 488-489]
(b) Attornment clause preventing extinguishment: Another form attornment clause requires the tenant to "attorn to" the purchaser at a foreclosure sale (i.e., accept the purchaser as the tenant's landlord) if the purchaser acquires and accepts the premises subject to the lease. [Miscione v. Barton Develop. Co. (1997) 52 Cal.App.4th 1320, 1331-1332, 61 Cal.Rptr.2d 280, 287-288]
In this situation, the parties have simply contracted that, if the purchaser accepts the existing lease, the lease will not be extinguished by the foreclosure. [Principal Mut. Life Ins. Co. v. Vars, Pave, McCord & Freedman, supra, 65 Cal.App.4th at 1485, 77 Cal.Rptr.2d at 488, fn. 8]
IAAL
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[This message has been edited by I AM ALWAYS LIABLE (edited May 04, 2000).]
My generic suggestions and analyses are: