FORECLOSURE UPDATE: SB 1079. On September 28, 2020, Senate Bill 1079 was signed into law. It granted a right of redemption or first refusal to purchase a foreclosed residential property to tenants, buyers intending to use the property as their residence, local governments, and other eligible buyers.
It caused all one-unit to four-unit family dwellings (including investment or rental
properties) that if at a trustee’s sale following a foreclosure, a property is not sold to a
Prospective Owner-Occupant, any one of the following individuals may submit a bid to purchase the property up to 45 days after the trustee’s sale.
- An Eligible Tenant Buyer;
- A Prospective Owner-Occupant;
- A nonprofit in which an Eligible Tenant Buyer or Prospective Owner- Occupant is a voting member
or director; - A California nonprofit corporation whose primary activity is the development or preservation of
affordable rental housing; - A limited partnership or limited liability company in which the managing partner or managing
member is a California nonprofit corporation whose primary activity is the development or
preservation of affordable rental housing; - A community land trust;
- A limited-equity housing cooperative; or
- The state of California, the Regents of the University of California, or any county, city, or
district local government, public authority or agency. Civ. Code § )-(I).
An Eligible Bidder must provide an affidavit to the trustee that they meet one of the
conditions above and must send written notice of intent to place a bid no more than 15 days after the trustee’s sale. Civ. Code § idder may submit a bid up to 5:00 p.m. on the 45th day after the trustee’s sale. Civ. Code §2924m(c)(4).
The Bill also imposes fines on new legal owners who fail to maintain any vacant
residential property purchased at a foreclosure sale. A failure to maintain may include permitting excessive foliage growth, allowing trespassers or squatters to remain on the property or failing to prevent mosquito population growth in excess standing water. Civ. Code § 2929.3(b). Each day, a city or county may fine the new owner up to $2,000 for the first 30 days and then $5,000 for each day afterwards. Civ. Code §2929.3(a)(3)(A)-(B).
A Prospective Owner-Occupant means a natural person who certifies in an
affidavit to the trustee that:
They will occupy the property as their primary residence within 60 days of the trustee’s deed being recorded;
They will maintain occupancy for at least one year;
They are not the mortgagor or trustor, or the child/spouse/parent of the mortgagor or trustor; and
They aren’t acting as agent of any person purchasing the property. Civ. Code §2924m(a)(1).
An Eligible Tenant Buyer means a natural person who:
Occupies the property as their primary residence;
Was a party to an arm’s length lease agreement with the borrower who was foreclosed upon; and
Is not the borrower or a family member.
SB 1079 LOOPHOLES
Since 2022, many individuals have used SB 1079 to purchase homes after a Foreclosure. However, many profit minded organizations lied and purchased foreclosures after a sale claiming to be eligible non-profits. The scammers always seem to rise like a Phoenix from the ashes of previous scams.
So, a new Assembly Bill 1837 was signed into law on September 28, 2022. This is a
reform of SB 1079 passed in 2022.
- Extends effect of the Homes for Homeowners, not for Corporations
legislation until 2031
- Revises requirements for nonprofit corporations and LLCs to be eligible
bidders. To be eligible, the organization must be a/an:
a. Nonprofit whose main activities must include development and preservation of affordable rental
or homeownership housing in California
b. LLC wholly owned by a nonprofit that meets the above requirement
c. Community and trust
d. LEHCX
- Expand affidavit and declaration requirements for eligible bidders to deter fraud.
- Authorize the Attorney General, a county counsel, or a city attorney to bring an action to enforce the law.
Let’s hope this change helps more eligible bidders and tenants become homeowners.
Great information. Should #8 on the eligible purchaser list be a concern? It seems a way for the government to acquire property it desires at a discount. After all, the government can always outbid a private individual for property it desires, thus nullifying the reason for the legislation. Or since cities, counties and the state of California are incorporated does item number 1 of the 2022 reform act also include said government entities?
Thank you Sterling for reading my email. I am sorry for such a late response, but somehow your comment got lost in my office. Probably my fault.
Sterling, the government unit will simply buy the property from the Trustee. They will pay the amount of the winning bid at the auction. There is no discount in the transaction. In my experience I have never seen a government unit coming to a Trustee Sale and bidding against the public. The law was written to try to eliminate companies like Blackstone and foreclosure investors from getting all the properties.
I will be writing another post on this law soon. Interesting to me is the fact that the original law was written in 2020 and in our MLO classes very few people have heard about it.
Keep reading and I will keep writing.
Hello,
Will a REO Realtor be required to vet home purchasers?
Thank you Julie for reading my email. I am sorry for such a late response, but somehow your comments got lost in my office. Probably my fault.
First Julie, this is a redemption after a Trustee Sale has been completed with the buyer not moving into the property. The buyer says that they want the property and qualify with the Trustee. It is not an REO situation. I do not see anywhere where a Realtor would have to vet people