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Important Changes to
California's Post-Foreclosure Sale Bidding Process
California Assembly Bill 1957 (AB 1957) introduces significant changes to the post-foreclosure sale bidding process established under Senate Bill 1079 (SB 1079). Effective January 1, 2027, these changes aim to clarify eligibility requirements, streamline procedures, and address challenges faced by lenders and trustees.
Overview
SB 1079 created California Civil Code § 2924m, allowing certain eligible parties, including prospective owner-occupants, to purchase properties following a foreclosure auction. Since its implementation, the law has presented numerous challenges for lenders and trustees.
AB 1957 aims to address several of these challenges by clarifying eligibility requirements, modifying bidding procedures, and introducing additional safeguards.
Key Changes Under AB1957
1. Junior Lien Foreclosures Exempt
Foreclosures involving junior liens will no longer be subject to § 2924m. This applies to sales occurring on or after January 1, 2027, regardless of when the Notice of Default or Notice of Sale was recorded.
2. Immediate Sale Finality Eliminated
Prospective owner-occupant affidavits will no longer be accepted at auction, and winning bidders will no longer receive immediate finality of the sale.
3. Uninhabitable Properties Exempt
Properties without a certificate of occupancy or those red-tagged for code violations will no longer be subject to § 2924m.
4. FHA Loan Limits Determine Eligibility
Properties must have a fair market value (FMV) at or below the applicable county FHA loan limit. Lenders must provide the FMV to trustees at least 10 days before the sale.
5. New Occupancy Deed Restrictions
Eligible tenant bidders must comply with a one-year occupancy deed restriction, which trustees must include in the Trustee's Deed Upon Sale (TDUS).
6. Stricter Nonprofit Requirements
Eligible nonprofits must be certified by the California Department of Housing and Community Development (HCD) and commit to 30 years of affordability. Trustees may rely on affidavits until certification verification guidance is available.
7. Updated Tenant Bidder Terminology
"Eligible Tenant Buyer" is replaced with "Eligible Tenant Bidder," with the addition of the one-year occupancy deed restriction.
8. Increased Penalties for Ineligible Bidders
Bidders who falsely claim eligibility may face penalties of up to one-third of the property's fair market value.
9. January 1, 2031 Sunset Date
The law retains its January 1, 2031 expiration date unless extended by future legislation.
What This Means for Lenders and Servicers
AB 1957 represents a meaningful step toward addressing some of the operational challenges created by SB 1079.
While additional guidance is still needed, particularly regarding FHA loan limits and nonprofit certification, the changes introduce several important exemptions and clarify aspects of the post-sale bidding process.
With the January 1, 2027 effective date approaching, lenders and servicers should begin reviewing how these changes may affect their upcoming California foreclosure sales.
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