In 2020, California took a significant step to address the foreclosure process for single-family homes with the passage of Senate Bill 1079 (SB 1079). This legislation was designed to create more equitable opportunities for individuals and organizations to purchase foreclosed properties, specifically those foreclosed upon due to mortgage defaults. However, it’s important to understand the scope and limitations of SB 1079, particularly in relation to homeowner association (HOA) lien foreclosures.
What is SB 1079?
SB 1079 was introduced to provide more opportunities for tenants, local governments, and affordable housing nonprofits to purchase foreclosed properties before they are sold to the highest bidder at auction. The primary goal of this bill is to help maintain community stability and prevent large investment firms from acquiring multiple properties, which can lead to increased rents and reduced homeownership opportunities.
Key Provisions of SB 1079:
- Extended Bidding Period: SB 1079 extends the bidding period for certain buyers, allowing tenants, local governments, and nonprofits an opportunity to make a purchase offer before the property is sold at auction.
- Priority for Certain Buyers: These eligible buyers have a window of opportunity to bid on the property at the same price offered by the highest bidder at auction, thereby giving them a competitive edge in acquiring the property.
- Encouraging Affordable Housing: By prioritizing affordable housing nonprofits, SB 1079 aims to ensure that more foreclosed properties can be converted into affordable housing units, benefiting low-income residents and helping to address the housing crisis.
Bundled Sale of Properties
A significant provision of SB 1079 is its prohibition on the bundled sale of foreclosed properties. During the Great Recession, large corporations often bulk-purchased foreclosed homes, which contributed to a decline in owner-occupied homeownership. SB 1079 prevents this by requiring that each foreclosed property be bid on and sold separately, unless the deed of trust specifies otherwise. This measure ensures that individuals and smaller organizations have a fair chance to purchase homes and promotes a more stable and equitable housing market.
What SB 1079 Does Not Cover
While SB 1079 introduces crucial protections and opportunities for specific parties in mortgage foreclosures, it does not apply to all types of foreclosures. One significant exclusion is HOA lien foreclosures.
Understanding HOA Lien Foreclosures
HOA lien foreclosures arise from a different set of circumstances and are governed by separate statutes and regulations in California. These foreclosures typically occur when homeowners fail to pay their HOA dues or assessments. Here’s how the process generally works:
- HOA Places a Lien: When a homeowner falls behind on their HOA dues, the association can place a lien on the property to secure the owed amount.
- Continued Non-Payment: If the homeowner continues to neglect payment, the HOA has the legal right to initiate foreclosure proceedings to recover the unpaid dues.
- Foreclosure Process: Unlike mortgage foreclosures, HOA lien foreclosures follow a different legal process and are not covered under the provisions of SB 1079.
Implications for Homeowners and Buyers
The distinction between mortgage foreclosures and HOA lien foreclosures is crucial for both homeowners and potential buyers. Homeowners facing foreclosure due to unpaid HOA dues do not benefit from the extended bidding periods or priority purchasing opportunities provided by SB 1079. Similarly, organizations and individuals interested in purchasing properties through foreclosure auctions must understand the different rules that apply to mortgage defaults versus HOA liens.
Bidding Advantage to Eligible Bidders
SB 1079 provides a significant advantage to “Eligible Bidders,” who have the right to submit a bid to purchase a foreclosed property 45 days after the trustee’s sale. Eligible Bidders must submit a bid that exceeds the highest bid at the auction, except in specific cases.
Who is an Eligible Bidder?
Eligible Bidders include:
- Eligible Tenant Buyer: A tenant who occupies the property as their primary residence, has a lease agreement before the Notice of Default was recorded, and is not the borrower or a family member.
- Prospective Owner-Occupant: A person who commits to occupying the property as their primary residence within 60 days of purchase and for at least one year.
- Nonprofit Organizations: Nonprofits involved in affordable housing development and preservation, including community land trusts and limited-equity housing cooperatives.
- Public Entities: The State of California, its subdivisions, and various public agencies.
Special Bidding Rules and Requirements
Eligible Bidders must:
– Provide an affidavit to the trustee identifying their eligibility category.
– Send a written notice of intent to bid within 15 days after the trustee’s sale.
– Submit their bid by the 45th day after the trustee’s sale.
Specific Rights for Eligible Tenant Buyers
Eligible Tenant Buyers can match the highest bid at the trustee’s sale instead of exceeding it, providing a significant advantage in securing the property.
Trustee Obligations After a Sale
SB 1079 imposes new obligations on trustees to ensure transparency and provide necessary information to potential buyers:
- Information Availability: Trustees must maintain a website and telephone line with sale details, including the sale date, highest bid amount, and an address for document submissions.
- Tenant Notices: Notices of Sale must inform tenants of their potential right to purchase the property.
Maintenance and Fines for Vacant Properties
New owners of foreclosed properties must maintain the property to avoid fines. Failure to maintain the property, such as allowing excessive foliage or not preventing trespassers, can result in significant daily fines.
Conclusion
SB 1079 represents a significant effort by California to create more equitable opportunities for purchasing foreclosed properties and supporting affordable housing initiatives. However, it is essential to recognize its limitations. The bill’s protections do not extend to HOA lien foreclosures, which are governed by separate regulations. Homeowners, tenants, and potential buyers should be aware of these differences to navigate the foreclosure landscape effectively.
Understanding the nuances of SB 1079 and HOA lien foreclosures can help stakeholders make informed decisions and advocate for further legislative measures that address all aspects of property foreclosure in California. If you have further questions regarding SB 1079, contact Tatman Legal today.