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.
This guide only covers the post-auction process for California foreclosures. I published a separate guide with information about the first part of the foreclosure process.
Read the Main Foreclosure Process Guide
What is SB 1079?
SB 1079 is a California law which upended the foreclosure process for residential properties. Its purpose is to offer more housing opportunities for homeowners and less opportunities for property investors (or large investment firms) that have typically had the upper hand with purchasing properties at foreclosure auctions in California. Under SB 1079, a foreclosure on a residential property in California has a post-auction process in which a potential owner-occupant buyer can place a bid after an investor has won the auction sale. SB1079 was passed in September 2020 and took effect in January 2021.
Example Scenario of Post-Auction Process
- Lender and Trustee complete the standard foreclosure process, typically 4 months
- Real Estate Investor wins the property with the highest bid at the auction
- Potential Owner-Occupants submit bids higher than the Investor’s bid
- Highest Owner-Occupant bidder gets the property
Eligible Bidders for Post-Auction
After the auction sale, any of the following types of bidders can out-bid a real estate investor:
- Tenant occupying the subject property
- Persons purchasing the property to make it their primary residence
- Non-Profit Organizations that promote affordable housing
- California state government entities
Applicable Property Types
The post-auction process only applies to residential properties:
- Single Family Residence
- Condominium
- Townhome
- Duplex (2 units)
- Triplex (3 units)
- Fourplex (4 units)
Land and commercial properties are exempt.
The Post-Auction Process
Here is the process created by SB 1079, after the auction sale:
- Within 15 days of the auction sale, Eligible Bidders must submit to the Trustee a non-binding Notice of Intent to Bid
- If no notices are received, the Trustee transfers the deed to the auction’s winning bidder on Day 16.
- After the 15-day period, Eligible Bidders have 30 days to submit an actual bid along with a cashiers check for the full bid amount
- Trustee will issue the deed to the highest Bidder
Tenants Have Priority
The tenants occupying the subject property only have to bid the auction’s winning bid amount, and they would get the property. All others have to be at least $0.01 over the auction’s winning bid amount. Tenants’ bids supersede bids by non-profit organizations, government entities, and persons who plan to occupy the property.
Conclusion
The California foreclosure post-auction created under SB1079 essentially clouds the transfer of title to the winning bidder from the auction sale, typically a real estate investor. The investor’s funds are tied up for a period of up to 45 days and may not end up getting the property. Investors would just have to hope that any eligible bidder doesn’t have the funds to purchase the property or doesn’t have any interest in the property.
The risk of having money tied up for that long will likely deter a lot of investors from bidding at the foreclosure auction, and perhaps this is the California lawmakers’ goal.
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