In another unprecedented move, Governor Newsom signed SB 1079 into law on September 28. The bill will completely reshape the foreclosure process in California. Previously, an auction of property at a foreclosure sale set the final price of the property and provided marketable title to the buyer of the property or the lender if the property reverted back at time of sale. This bill now creates a right of first refusal after a foreclosure sale where a buyer can purchase the property from the winner of the foreclosure auction by offering to purchase for any amount greater than the final price at auction.
Below is a high-level summary of what lenders need to understand about this legislation and its impact. A detailed outline prepared by AAPL & its General Counsel, Geraci LLP, can be found here.
- Application. The law applies to ALL loans secured by 1-4 family property regardless of whether they are for business or consumer purposes.
- Timing. The law went into effect on September 28, 2020 and extends through January 1, 2026. All notices of sales recorded must now contain special language.
- Coverage. The bill permits “Eligible Bidders” to bid on foreclosed properties up to 45 days after the foreclosure sale. Eligible Bidders are (i) the tenant at the property that was foreclosed, (ii) a person who wants to purchase the property as their primary residence, or (iii) certain types of non-profit organizations.
- Other Issues Covered. The bill also creates fines and penalties for owners of properties who fail to maintain a vacant property after a foreclosure sale. Fines for violations range from $2,000-$5,000 per day.
- Key Takeaway. Mortgage lenders foreclosing on a 1-4 family residential property will likely need to start their bidding at the maximum credit bid under their loan. This will eliminate any right to a deficiency against a guarantor. Otherwise, a potential buyer could come in and purchase a REO property from the lender or any other third party who purchased at auction even if the new buyer is paying substantially less than the amount due under the loan. Any purchaser at foreclosure auction should now expect a 45 day cloud on title preventing them from selling a property after foreclosure sale.
Can Newsome screw up this state any more ? Hmm. Let me count the ways.
Could someone pass me my calculator?
Time to move. California has just become the laughing stock of the country.
Every time I ask myself how much more this guy can do to foul this state up I am amazed. Does he live here ? He needs to wipe that stupid grin off his face and get real. I just laugh at how he acts like we (California) are going to save the planet.
It’s like giving a whale a tic-tac !!