In this guide, I’ll explain California’s unique post-sale process for residential property foreclosures, which occurs when the winning bidder at the auction is a real estate investor. This process was enacted in 2021, after the state passed a new law called SB 1079. Its intention is to give potential homeowners an advantage over real estate investors who historically have been the big winners at foreclosure auctions. Most of the information below was gathered from an interview I did with Randy Newman, President of Total Lender Solutions. They provide non-judicial foreclosure services in 5 states.
Summary of Interview on SB 1079 and the California Foreclosure Post-Auction Process
Background on SB 1079
- Purpose: SB 1079 was introduced to disrupt traditional foreclosure auctions that favored large investment firms and real estate investors.
- Implementation: Passed in September 2020 and effective as of January 2021, it provides a mechanism for owner-occupants, tenants, and certain organizations to outbid investors post-auction.
Step-by-Step Breakdown of the Post-Auction Process
- Standard Foreclosure Process: The foreclosure process typically takes about four months before the auction occurs.
- Investor Wins Auction: The highest bid at the auction often comes from a real estate investor.
- Post-Auction Bidding Period:
- Within 15 Days:
- Eligible bidders (tenants, owner-occupants, nonprofits, and government entities) must submit a Notice of Intent to Bid to the trustee.
- If no notices are received, the auction winner (typically an investor) secures the property.
- Within 30 Days After Notice Period:
- Eligible bidders submit an actual bid with a cashier’s check for the full amount.
- The highest bidder wins the property.
- Within 15 Days:
Who Can Submit a Post-Auction Bid?
Eligible bidders include:
- Current tenants living in the foreclosed property
- Individuals intending to use the property as their primary residence
- Nonprofit organizations dedicated to affordable housing
- State and local government agencies
Types of Properties Covered
- Single-family residences
- Condominiums
- Townhomes
- Duplexes (2 units)
- Triplexes (3 units)
- Fourplexes (4 units)
Exempt Properties: SB 1079 does not apply to commercial properties or vacant land.
Tenant Priority in Bidding
- Tenants living in the property at the time of foreclosure receive priority.
- They can match the auction-winning bid and automatically secure the property.
- All other eligible bidders must bid at least $0.01 more than the auction-winning bid.
Impact on Real Estate Investors
- Investors face uncertainty as their funds are tied up for up to 45 days while waiting to see if an eligible bidder steps in.
- This delay may discourage investors from bidding at foreclosure auctions altogether.
- California lawmakers likely intended this outcome to promote housing access for residents over large-scale investors.
Conclusion
SB 1079 reshapes the foreclosure auction process by prioritizing owner-occupants and nonprofits over investors. The law extends the timeline for securing a property, increasing risks for real estate investors while providing more opportunities for tenants and future homeowners. The ultimate effect may be fewer investors bidding at foreclosure auctions, potentially shifting the housing landscape in California.
