Senate Bill 1079 Fundamentally Alters the Foreclosure Trustee Sale Process in California
Senate Bill 1079 was introduced into law by Governor Newsom on September 28, 2020. The law fundamentally changes the foreclosure sales process by adding a 45-day window for certain eligible bidders after the trustee’s public sale is complete. The bill goes into effect on January 1, 2021 and expires in 2026. It applies to any 1-to-4 family dwelling, including investment and rental properties.
Digging deeper, SB 1079 changes a trio of provisions intended to “mitigate against blight, vacancy, and the transfer of residential property ownership from owner-occupants to corporate landlords if California experiences a wave of foreclosures.” The law prohibits trustees from bundling properties for sale unless the deed of trust specifies the cross-collateralization of multiple properties. Additionally, when the property consists of several lots or parcels, each is sold separately unless the deed of trust provides otherwise.
More importantly, SB 1079 provides a first-right of refusal after concluding the trustee’s sale to “Eligible Bidders.” An eligible bidder includes:
1. A tenant-buyers occupies the property as their primary residence, has an arm’s length lease dated before the notice of default, and is not the borrower’s family member.
2. A prospective owner-occupant who signs a statement affirming they will live at the property within 60 days after the final sale will live there for at least one year. The prospective owner-occupant is not the borrower’s family member and is not otherwise acting as an agent of another person or entity.
3. A nonprofit
4. A limited partnership or limited liability company with a nonprofit general partner or managing member, whose primary activity is the development and preservation of affordable housing.
5. A community land trust
6. A limited equity housing cooperative
7. The State or extensions of the State government (i.e. University of California, cities, counties, public agencies)
Trustees must include Tenants on the Notice of Sale, and the trustee must post the sale through a website with a live phone number. Within 48 hours after the sale, the trustee must post relevant sales information on the website, including the date of the sale, the amount of the last and highest bid, and an appropriate address where you can send notices by mail or overnight delivery.
From there, an Eligible Bidder has 15 days after the trustee’s sale to send a notice of intent to bid to the trustee, and after that, you must submit a qualified bid no more than 45 days after the trustee’s sale.
There is no telling yet how SB 1079 will impact the residential market in California. Still, this decision will dramatically affect institutional buyers and investors of California 1-to-4-unit residential housing with a likely adjustment to cost of capital for risk and a restriction of investor capital into California real estate, which is the intent of the legislation.