C.A. 2nd;
B272168

The Second Appellate District reversed a judgment. The court held that when a commercial tenant defaulted on a loan secured by its lease, the mortgage lender, who foreclosed on the property, took possession of the premises, but was not bound by the tenant's obligation to remain in possession for the full term of the lease.

In 2006, a tenant entered into a 15-year lease for a restaurant space in a shopping center. The tenant recorded a memorandum of lease with the county recorder. Tenant subsequently took out a loan from Farmers & Merchants Bank of Long Beach, and recorded a construction deed of trust securing the loan. The deed of trust identified the property as “[a]n unrecorded leasehold estate established by a memorandum of lease” Tenant assigned its right, title, and interest in all present and future leases of the premises to Farmers & Merchants. Tenant defaulted on the loan. Farmers recorded a notice of trustee's sale of the property, and later recorded a trustee's deed upon sale identifying itself as the successful bidder of the leasehold estate. Both documents described the property in the same language as the construction deed of trust. The bank transferred its interest to a third party. That party stopped paying rent and surrendered possession of the premises in December 2014.