Is the state of California really going to buy foreclosures? Well, according to this Senate Bill 1079? NO.
I’ve recently seen headlines about a recently passed Senate Bill 1079 or “The Homes for Homeowners, not Corporations” bill. A number of YouTubers have made videos (myself included) about it. Most of them have to do with some version of the sky falling. But frankly, I just don’t see it. Maybe I’m missing something? Nonetheless, today, I want to talk about what this bill says, what it’s going to do, and how it affects us here in the East Bay in our real estate, transacting world. Let’s get started.
Who are allowed to buy foreclosed properties?
First and foremost, Senate Bill 1079 creates rules regarding who can buy foreclosed properties. According to the bill, natural people, tenant occupants, certain corporations, partnerships, and nonprofits now have an ability to buy these properties at auction, or match winning bids. Moreover, the property has to be a one to four unit residential property. This means that larger buildings or apartment buildings with hundreds of units aren’t counted.
Eligible Tenant Buyers under Senate Bill 1079
Senate Bill 1079 defines an eligible tenant buyer as someone who’s occupying the property as their primary residence. Those people will get the opportunity to purchase the property during the foreclosure process.
If you fall into this definition, you are allowed to make an offer and buy the property before it goes to the courthouse steps. I imagine this process is going to happen through the 90-day Notice of Default process with some of the workarounds that you’re allowed to negotiate with your bank. If you are not very familiar with the foreclosure process in the state of California, I also did a blog which outlines all the steps of the foreclosure process in California which you can read here.
Other Entities Who Are Eligible To Make an Offer
Aside from tenant buyers, there are other entities who are eligible to make an offer. This includes nonprofit associations, nonprofit corporations, corporations who are cooperative with eligible tenant buyers, limited partnerships in which the managing general partner is an eligible nonprofit corporation, limited liability companies with the same definition, community land trust, limited equity, housing cooperatives like the regions of the University of California, City Council District, public attorneys, and owner occupants.
The Process of Making an Offer
Once the property goes to the courthouse steps and the winning bid is a corporation, a flipper, a REIT, or an Investment Bank of some kind, any of the eligible buyers we’ve identified above, have 45 days post gavel drop, to match that offer. Then, if they match that offer, they win and get to purchase the property.
One other thing to note is that if the home is occupied by tenants, and then a corporation or an investor buys that home, those tenants have time to match the investor’s bid.
What Comes After Winning
Being an ” eligible buyer” isn’t the only change here. After successfully purchasing the property, they actually have to occupy the property. This is very crucial because if you keep the property vacant property, there are fines in the range of $2,000 to $5,000 for EACH DAY that it’s vacant.
With Senate Bill 1079, the state wants to promote owner occupants and not allowing people to park money in real estate. Instead, they want to create housing. They really want to get people to live in these places.
How the Debtors and Lenders Will Be Affected by Senate Bill 1079
This is all well and good but this rule requires property to actually go through the foreclosure process. The moratorium just got extended to June and it many properties could be delayed even longer.
One other note is that there is now more of an incentive for mortgage lenders start the opening bid at the maximum that they’re owed. That means their principal plus all the delinquent payments.
Why is that important? Because it potentially eliminates all of the debtor’s debt and delinquency amount. Therefore, if the lenders made whole, they’re going to report that to the person’s credit. In turn, that’s going to change the entire trajectory of that person who got foreclosed on, going forward.
Even with this law, we will still see some properties go back to the banks in the form of REO properties. These are properties that’s been foreclosed on but didn’t sell at auction, and will then be resold on the open market by the bank. They typically transact for something like 10 to 40% below the market value. However, the likelihood that you’re going to see a ton of those is also very low and it just got smaller with the passage of this new bill. Therefore, the likelihood that those will drag prices down in any significant way is very low.
With Senate Bill 1079 and all these new rules, it’ll be really interesting to see what happens. For now, the foreclosure moratorium has just got kicked out to the end of June so this won’t really have an impact on us for some time. However, it’s still definitely something you need to be aware of. If you’re someone who wants to buy a foreclosure, you might just get your opportunity later this year.
I hope my video and blog on whether the State of California really plans to buy foreclosures and Senate Bill 1079 has helped you.
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