Foreclosure Does Not Eliminate Density Bonus Obligations: Court of Appeal Upholds Enforceability of Affordable Housing Agreements

In Rodriguez v. City of Los Angeles, 116 Cal.App.5th 488 (2025), the Second District Court of Appeal held that a recorded density bonus agreement requiring long-term affordable housing survives a foreclosure sale. The court’s decision reaffirms the durability of affordable housing obligations imposed through the land-use entitlement process and carries important implications for property owners, developers, lenders, and purchasers of distressed assets.

The case arose from a residential project approved in 2005, when a prior owner obtained a density bonus under California’s Density Bonus Law (Gov. Code §§ 65915 et seq.). As a condition of that approval, the owner entered into a written agreement with the City of Los Angeles committing to reserve one of the bonus units for low-income tenants for at least 30 years. The agreement was recorded against the property and expressly tied to the project’s building permit. Several years later, the owner defaulted on its loan, and the lender foreclosed in 2013. The plaintiffs purchased the property at a foreclosure sale in 2019 and later sought to quiet title, contending that the affordable housing agreement was a junior encumbrance extinguished by foreclosure.

The Court of Appeal rejected the junior-encumbrance theory and affirmed the trial court’s dismissal of the action. Central to its analysis was the legal character of the recorded agreement. Although the plaintiffs attempted to frame it as a conventional covenant or equitable servitude, the court concluded that the agreement functioned as a land-use permit condition imposed in exchange for discretionary approval of the density bonus. The court emphasized that substance controls over form: the agreement’s recitals and operative provisions tied it directly to the issuance of the permit, making it inseparable from the underlying entitlement.

Once characterized as a permit condition, the enforceability of the agreement against successor owners followed naturally from settled land-use principles. Under Government Code section 65009(c)(1)(E), any “condition attached to a … permit” accepted by a project applicant and not challenged within 90 days of issuance remains enforceable and runs with the land. The court relied heavily on City of Berkeley v. 1080 Delaware, LLC, 234 Cal.App.4th 1144, 1151 (2015), which held that inclusionary housing requirements imposed through the entitlement process survived foreclosure and bound later purchasers. Allowing foreclosure to eliminate such conditions, the court reasoned, would undermine regulatory certainty and create incentives to evade land-use obligations through default.

The court also made clear that a quiet title action cannot be used to sidestep statutory land-use limitations periods. Section 65009 reflects a legislative judgment that land-use approvals must achieve finality, and successor owners cannot reopen long-settled permit conditions by reframing them as title disputes years later.

For property owners and developers, Rodriguez underscores that affordable housing commitments imposed through density bonus approvals are not merely contractual obligations of the original applicant. When recorded as part of the entitlement process, they are regulatory conditions that travel with the land and may survive foreclosure and subsequent transfers. For lenders and investors, the decision highlights the importance of land-use due diligence in addition to traditional title review, particularly when acquiring distressed properties.

More broadly, the opinion reinforces the reliability of California’s housing incentive framework. By confirming that density bonus agreements can bind successor owners over time, the Court of Appeal’s analysis enhances the predictability of land-use enforcement and the long-term viability of affordable housing commitments tied to development approvals.