Navigating California’s Senate Bill 1079: Transforming the Foreclosure Landscape

Senate Bill 1079, enacted on September 28, 2020, introduces critical reforms to California's foreclosure and post-foreclosure processes. Targeting properties with one to four residential units, this legislation aims to reduce the impact of large investors converting foreclosed homes into rentals. Below, we delve into the most impactful provisions: the revised post-auction bid process, enhanced eviction protections, increased penalties for property maintenance, and the implications for investors and prospective homebuyers.

2. Revised Post-Auction Bid Process

One of the most significant changes under SB 1079 is the overhaul of the post-auction bid process. Traditionally, the highest bidder at a foreclosure auction would secure the property immediately. However, SB 1079 introduces a new layer to this process designed to prioritize owner-occupancy and give tenants and other eligible bidders a fair chance.

If the highest bidder at the auction is not a prospective owner-occupant, other eligible bidders, including tenant buyers, can submit a Notice of Intent to Bid within 15 days following the auction. This notice is non-binding but signals the intent to match the highest bid. The trustee is then required to wait until the 45th day after the auction for these bidders to submit their funds.

This process ensures that if a tenant group can match the highest bid, they can secure the property. The impact on lenders is considerable, as this change delays the finalization of the sale and the receipt of proceeds. Lenders must now wait up to 45 days, during which the property remains under their responsibility, potentially increasing costs and risks associated with maintenance and security.

3. Enhanced Eviction Protections

SB 1079 significantly strengthens eviction protections for tenants in properties that have undergone foreclosure. New Civil Code section 2924n clarifies that post-foreclosure evictions must comply with existing tenant protection laws, including those established by Assembly Bill 1482.

This means that tenants in foreclosed properties are entitled to notice requirements, relocation assistance, and just cause eviction protections, unless the new owner is exempt under AB 1482. This compliance requirement introduces additional steps for new owners, including lenders who acquire properties through foreclosure, ensuring that any eviction or displacement of tenants adheres strictly to the law.

4. Increased Penalties for Property Maintenance

The Bill also increases the penalties for failing to maintain post-foreclosure properties. Civil Code section 2929.3 has been amended to raise the fines for property maintenance violations. Previously, fines were capped at $1,000 per day. SB 1079 increases these fines to up to $2,000 per day for the first 30 days of non-compliance, and up to $5,000 per day thereafter.

This substantial increase in potential fines underscores the importance of property upkeep during the period between foreclosure and resale. Lenders and new owners must be vigilant in maintaining properties to avoid these severe financial penalties, which can accrue rapidly and significantly impact the profitability of a foreclosure sale.

For Investors and Prospective Homebuyers

SB 1079 creates a more challenging landscape for investors and prospective homebuyers. The extended timelines and enhanced tenant protections may deter some investors due to the increased complexity and potential for delayed returns on investment. However, for prospective owner-occupants and tenant buyers, the Bill provides new opportunities to acquire properties that might have otherwise been out of reach.

The requirement for eligible bidders to act swiftly and have sufficient funds ready within 45 days post-auction creates a competitive but potentially rewarding environment for those prepared to navigate the new process. Additionally, the emphasis on compliance with tenant protection laws ensures that tenants' rights are preserved, making the process fairer for all parties involved.

Conclusion

California's Senate Bill 1079 introduces substantial changes to the foreclosure and post-foreclosure processes, aiming to prioritize owner-occupancy and protect tenant rights. While the revised post-auction bid process and enhanced eviction protections create additional challenges for lenders and investors, they also open new avenues for prospective homeowners and tenants. The increased penalties for property maintenance further emphasize the importance of diligent property management. As these changes take effect, all stakeholders must adapt to the new legal landscape to navigate foreclosures and property acquisitions effectively.