California Passes SB 1079, Creating Right of First Refusal After Trustee Sales

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Article by:

Nema Daghbandan, Esq.

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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 you’ll find high-level summaries in video and text of what lenders need to understand about this legislation and its impact.

https://www.youtube.com/watch?v=75eCGm4KkF4
Nema Daghbandan, Esq., explains the impact of SB 1079 on private lenders. Sign up for the AB 3088 webinar, hosted by Nema Daghbandan and Melissa Martorella, here.

Summary of SB 1079 – What You Need to Know

A detailed outline provided by AAPL and its General Counsel, Fortra Law, 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 bill was signed into law on September 28, 2020 and is effective on January 1, 2021. It extends through January 1, 2026. All notices of sale 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 an 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.

Click here to see a more detailed outline provided by AAPL and its General Counsel, Fortra Law.

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