On September 18, 2026, Governor Newsom signed AB 1957 (Pacheco) into law, marking the biggest course correction to California’s nonjudicial foreclosure process since SB 1079 reshaped it in 2020. For lenders, servicers, and trustees who have spent the last five years dealing with the uncertainty SB 1079 created, this is welcome news.
AB 1957 takes effect January 1, 2027. Here is what changed and why lenders should care.
The Problem SB 1079 Created
SB 1079, codified at Civil Code § 2924m, was enacted during the pandemic to, ostensibly, keep foreclosed homes in the hands of owner-occupants and community organizations rather than large investors. It did that by bolting a post-auction bidding window onto certain trustee’s sales involving one-to-four-unit residential property. The result was a foreclosure process that no longer necessarily ended when the auction ended.
Under SB 1079:
- The sale did not necessarily end when the hammer fell. For sales subject to Civil Code § 2924m, the trustee’s sale was not immediately deemed final at the auction.
- A 15-day trigger could open a 45-day bidding window. Certain eligible bidders could submit a bid or notice of intent within 15 days. If the statutory requirements were met, eligible bidders could then have up to 45 days after the trustee’s sale to submit a qualifying bid.
- Title stayed with the borrower until the sale became final. During the applicable bidding period, title remained with the mortgagor, trustor, or successor in interest.
- The deed-recording timeline could stretch. If an eligible bidder submitted a written notice of intent to bid, the trustee’s deed could relate back to the auction date if recorded within 60 calendar days rather than the ordinary 21-day period.
For lenders, trustees, and purchasers, this meant weeks of uncertainty after a foreclosure sale. Title could remain unresolved. REO disposition could be delayed. And a sale everyone thought was over might not actually be over.
A few recent cases illustrate the problem.
In Bird Rock Home Mortgage, LLC v. Breaking Ground, LP, which involved an HOA assessment foreclosure, Bird Rock submitted the $60,000 high bid at the initial sale. Breaking Ground later submitted a $203,000 bid during the extended bidding period and ultimately received the trustee’s deed.
In In re Garcia, the foreclosure trustee refused to issue a trustee’s deed and rescinded the transaction after questions arose about whether the purported prospective owner-occupant actually qualified. The Bankruptcy Appellate Panel affirmed that the foreclosure sale was never finalized and the property remained part of the debtor’s bankruptcy estate.
And in In re Tinsley, the borrowers filed bankruptcy while the § 2924m bidding period was still open. Because the sale was not yet final, they still held title and the property became part of the bankruptcy estate.
The law also created an obvious incentive: why compete aggressively at the public auction if you might be able to wait, see the winning bid, and come in afterward through one of the eligible-bidder categories? That was especially problematic with the “prospective owner-occupant” category.
What AB 1957 Changes
AB 1957 does not eliminate the post-sale bidding process. Qualifying tenants and community bidders can still use it. What the new law does is narrow the process and tighten several of the rules that created problems under SB 1079.
1. The “Prospective Owner-Occupant” Category Is Gone
This is probably the biggest change.
AB 1957 removes prospective owner-occupants from the definition of an eligible bidder. Going forward, an eligible bidder under § 2924m is either an eligible tenant bidder or an eligible community bidder. The prospective owner-occupant category had become a major point of contention because it created an avenue for investors to enter the process after the public auction under the guise of buying the property to occupy it.
That avenue is now gone. Investors who do not otherwise qualify as eligible bidders will have to compete at the public auction.
2. Nonprofit Bidders Have More Boxes to Check
AB 1957 also tightens the requirements for nonprofit corporations seeking to qualify as eligible community bidders. Among other requirements, an eligible nonprofit corporation must:
- Have federal 501(c)(3) tax-exempt status
- Have its principal place of business in California
- Have California-based board members
- Identify affordable rental or homeownership housing in California as one of its primary activities
- Be registered and in good standing with the California Attorney General’s Registry of Charities and Fundraisers
- Meet specified requirements under Government Code § 65863.11
The practical point is simple: calling yourself a nonprofit is not enough. The statute now provides a more defined set of requirements for organizations trying to use the post-sale process.
3. The Law Is Now Limited to First-Lien Sales
AB 1957 adds a new definition of “eligible property.” For an eligible community bidder, the property must be residential real property containing four or fewer units and must be sold under a first-lien deed of trust or mortgage. That first-lien requirement is important. The old law could apply in situations involving junior-lien foreclosures, which created the possibility that a bidder could acquire the property only to find that a senior lien remained in place. AB 1957 removes those junior-lien sales from the § 2924m process.
4. Tenant Bidders Face Additional Property and Occupancy Requirements
Eligible tenant bidders have additional requirements. For a tenant bidder to use the post-sale process, the property must have had a valid certificate of occupancy on the date of the trustee’s sale. It cannot have been red-tagged or subject to a substandard-building violation that prevented occupancy. The property’s fair market value must also be at or below the applicable Federal Housing Administration loan limit for the metropolitan statistical area where the property is located. Those requirements apply specifically to the eligible tenant bidder path.
Tenant bidders must also prove that the tenancy actually exists. An eligible tenant bidder must occupy the property as a primary residence under a qualifying arm’s-length rental or lease agreement that predates the notice of default. The bidder must provide evidence of that tenancy, such as the signed lease or rental agreement or other specified documentation. And if the tenant wins the property, the tenant must agree to remain in the property for at least one year under a deed restriction. In other words, the statute now requires more than simply saying, “I’m the tenant.”
5. There Are Real Consequences for Improper Bids
When an eligible bidder ultimately becomes the winning bidder, the trustee or authorized agent must report specified information to the California Attorney General within 15 days after the sale becomes final. That includes information about the sale, the property, the winning bidder, the trustee’s deed, and the bidder category used. The Department of Justice is then required to publish a summary of that information in a searchable public repository.
The enforcement provisions are also significant. The Attorney General, county counsel, city attorney, or district attorney may bring an action to enforce § 2924m. If someone submits a bid who was not actually entitled to bid under the statute, the government may seek a civil penalty equal to one-third of the property’s fair market value, in addition to other available remedies. That is a fairly expensive way to test whether you qualify.
Why Lenders Should Care
For lenders, the changes address several of the biggest headaches SB 1079 created.
More Buyers Should Have a Reason to Show Up at the Auction
Removing the prospective owner-occupant category eliminates one of the ways investors could wait until after the public sale to enter the bidding. If an investor does not qualify as a tenant or community bidder, the public auction is the place to compete. That should give serious buyers more reason to participate in the sale itself rather than waiting to see what happens afterward.
Fewer Questionable Eligibility Claims
AB 1957 gives trustees and other parties more concrete criteria to work with. Prospective owner-occupants are gone. Nonprofits face more specific requirements. Tenant bidders have to document their tenancy and agree to remain in the property. None of that guarantees there will never be another eligibility fight, but there should be fewer gray areas.
A Smaller Universe of Sales Is Subject to the Rule
The first-lien requirement alone narrows § 2924m significantly. The tenant-bidder path is narrower still because of the additional occupancy, habitability, and value requirements. That means fewer foreclosure sales will be caught in the extended post-sale process in the first place.
The Post-Sale Window Still Exists
This part is important.
AB 1957 does not bring California back to the foreclosure process that existed before SB 1079. The 15-day and potential 45-day post-sale framework still exists for qualifying transactions. So lenders, trustees, and purchasers still need to understand when § 2924m applies and when a sale is actually final. What AB 1957 does is make that process narrower and more defined. That is a meaningful improvement.
The Bottom Line
SB 1079 was well-intentioned, but its post-sale bidding process traded finality for a system that could be, and too often was, manipulated. AB 1957 keeps the door open for legitimate tenants and qualifying community organizations while eliminating the prospective owner-occupant category, limiting the process to first-lien sales, and adding stronger eligibility, documentation, reporting, and enforcement requirements. It does not eliminate every problem created by § 2924m. But for anyone who lends against, services, or forecloses on California residential property, it is a significant step toward a foreclosure process that is easier to understand and more predictable to navigate.
AB 1957 takes effect January 1, 2027. Lenders, servicers, and trustees should review their foreclosure procedures before then to make sure their processes account for the amended law.
Fortra Law’s Litigation & Bankruptcy team represents private lenders, servicers, and other creditors in California foreclosure, loan enforcement, workouts, bankruptcy, and related litigation. If your team has questions about how AB 1957 affects an upcoming trustee’s sale or existing foreclosure procedures, contact our team.
This article is for general information and does not constitute legal advice. AB 1957 (Pacheco) was approved by the Governor on September 18, 2026. Lenders, servicers, and trustees should review the enacted amendments to Civil Code §§ 2924d, 2924f, 2924h, and 2924m before updating foreclosure procedures.
