Law Review: Dramatic change of residential foreclosure laws in California
In an effort to increase home ownership in California, the Legislature and Governor Gavin signed SB 1079 which drastically changes California’s foreclosure laws – at least when the property being foreclosed contains from one to four single-family residences. Not commercial properties.
THE OLD LAW
Prior to SB 1079, if a property owner failed to make payments to the lender, the lender went through a series of steps including notices and recordings of a Notice of Default and a Notice of Sale, finally being able to auction the property at a foreclosure sale.
Generally, the lender took back the property at the auction bidding what it was owed, but on occasion a third-party bidder would come along, make a higher bid and end up going on title to the foreclosed property. Title was confirmed once a trustee’s deed was recorded. That was the old days.
SB 1079 AMENDS CIVIL CODE
With SB 1079 there is now a right of first refusal after the foreclosure sale, where a qualified buyer can purchase the property from the buyer at the foreclosure auction, by offering to purchase for any amount greater than the final amount offered at the auction. Wow. This bill becomes effective January 1, 2021, and sunsets January 1, 2026.
The new law permits “Eligible Bidders” to bid on foreclosed properties up to 45 days after the foreclosure sale. Eligible Bidders are: (i) any tenant at the property that was foreclosed; (ii) a person who wants to purchase the property as their primary residence (subject to proof); or (iii) certain types of affordable housing-related non-profit organizations.
One downside of the new law is that lenders may think twice about lending, because the once final foreclosure sale is no longer final.
In other words, after initial bids at a foreclosure auction are received, tenants at the property and qualified individuals who want to buy the property to live in and certain types of non-profit organizations have a chance to buy the property. The latter are generally non-profits in the affordable housing business plus community land trusts in the housing business and even the State and University of California.
The law prohibits lenders from “bundling” properties at trustee auction sales. Properties must be individually foreclosed upon. A website must be setup by the lender providing details about foreclosure properties. I like that.
To address the number of vacant properties that blight residential communities following foreclosure sales by lenders who take back properties then do not maintain them, SB 1079 allows government entities to impose civil fines of up to $2,000 a day for the first 30 days that the property is not properly maintained, and up to $5,000 a day afterwards.
HOMES FOR HOMEOWNERS
If you thought foreclosure law was complicated before, it is even more complicated now. Whether you are a lender, a tenant being foreclosed out from under your home or a non-profit who qualifies as an “Eligible Bidder,” or an innocent third-party buyer purchasing at a foreclosure auction, you need to understand these new laws. This simplified column is not much more than a “heads-up.” There are pages and pages of details in SB 1079.
The new law is being billed as “homes for homeowners, not corporations.” I am not sure. I guess we will see in time.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at email@example.com or http://www.portersimon.com.
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