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Date	Status
Sep 28, 2020	Chaptered by Secretary of State. Chapter 202, Statutes of 2020.
Sep 28, 2020	Approved by the Governor.
Sep 9, 2020	Enrolled and presented to the Governor at 3 p.m.
Aug 31, 2020	Assembly amendments concurred in. (Ayes 30. Noes 9.) Ordered to engrossing and enrolling.
Aug 30, 2020	In Senate. Concurrence in Assembly amendments pending.
Aug 30, 2020	Read third time. Passed. (Ayes 49. Noes 17. Page 5304.) Ordered to the Senate.
Aug 24, 2020	Read third time and amended.
Aug 13, 2020	Read second time. Ordered to third reading.
Aug 12, 2020	From committee: Do pass. (Ayes 8. Noes 1.) (August 12).
Aug 10, 2020	From committee with author's amendments. Read second time and amended. Re-referred to Com. on JUD.
Jul 27, 2020	July 30 hearing postponed by committee.
Jul 9, 2020	July 22 hearing postponed by committee.
Jun 29, 2020	Referred to Com. on JUD.
Jun 26, 2020	In Assembly. Read first time. Held at Desk.
Jun 26, 2020	Read third time. Passed. (Ayes 30. Noes 10. Page 3880.) Ordered to the Assembly.
Jun 22, 2020	Read second time. Ordered to third reading.
Jun 18, 2020	From committee: Do pass as amended. (Ayes 5. Noes 2. Page 3769.) (June 18).
Jun 11, 2020	Set for hearing June 18.
Jun 9, 2020	June 9 hearing: Placed on APPR. suspense file.
Jun 3, 2020	Set for hearing June 9.
May 29, 2020	Read second time and amended. Re-referred to Com. on APPR.
May 28, 2020	From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 7. Noes 1. Page 3583.) (May 22).
May 13, 2020	From committee with author's amendments. Read second time and amended. Re-referred to Com. on JUD.
May 12, 2020	Referral to Coms. on GOV. & F., and HOUSING rescinded due to the shortened 2020 Legislative Calendar.
May 12, 2020	Set for hearing May 22.
Mar 18, 2020	March 24 hearing postponed by committee.
Mar 11, 2020	Set for hearing March 24.
Mar 5, 2020	Referred to Coms. on JUD., GOV. & F., and HOUSING.
Feb 20, 2020	From printer. May be acted upon on or after March 21.
Feb 19, 2020	Introduced. Read first time. To Com. on RLS. for assignment. To print.

Date	Description	Location	Votes
Aug 31, 2020	Unfinished Business SB1079 Skinner et al. Concurrence	Senate Floor	30 9 1 Passed
Aug 30, 2020	SB 1079 Skinner Senate Third Reading By Grayson	Assembly Floor	49 17 13 Passed
Aug 12, 2020	Do pass.	Assembly Standing Committee on Judiciary	8 1 2 Passed
Jun 26, 2020	Senate 3rd Reading SB1079 Skinner	Senate Floor	30 10 0 Passed
Jun 18, 2020	Do pass as amended	Senate Standing Committee on Appropriations	5 2 0 Passed
Jun 9, 2020	Placed on suspense file	Senate Standing Committee on Appropriations	7 0 0 Passed
May 22, 2020	Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations]	Senate Standing Committee on Judiciary	7 1 0 Passed

Key

Pro

Against

Did Not Vote

SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

SB 1079

UNFINISHED BUSINESS

Bill No: SB 1079

Author: Skinner (D), et al.

Amended: 8/24/20

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-1, 5/22/20

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Umberg, Wieckowski

NOES: Jones

NO VOTE RECORDED: Borgeas

SENATE APPROPRIATIONS COMMITTEE: 5-2, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Bates, Jones

SENATE FLOOR: 30-10, 6/26/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NOES: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen

ASSEMBLY FLOOR: 49-17, 8/30/20 - See last page for vote

SUBJECT: Residential property: foreclosure

SOURCE: Author

DIGEST:

This bill proposes a trio of provisions intended to mitigate against blight, vacancy, and the transfer of residential property ownership from owner-occupants to corporate landlords in the event that California experiences a wave of foreclosures.

Assembly Amendments

(1) remove the proposed 20-day pre-trustee sale window for tenants, prospective owner-occupants, nonprofit affordable housing providers, community land trusts, limited-equity housing cooperatives, and public entities to offer to buy single family homes about to be sold at foreclosure auction, replacing it instead, until 2026, with a 45-day post-trustee sale window in which any of those same entities can buy the property by matching (in the case of tenants) or exceeding (in the case of other purchasers) the last and highest bid made at the foreclosure auction; (2) remove the proposed limitation on how many properties a purchaser may obtain at any public auction of foreclosed properties; and (3) reduce the proposed increase in fines that local agencies are authorized to impose for properties left vacant and unmaintained in the wake of a foreclosure sale while also strengthening the notice requirements prior to imposition of such fines.

ANALYSIS:

Existing law:

Sets forth non-judicial procedures through which a lender may foreclose upon the property securing the loan and, through the power of sale contained in any deed of trust or mortgage, force sale of the property at auction. (Civ. Code §§ 2920-2944.10.)
Specifies that all sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. (Civ. Code § 2924g.)
Sets forth judicial procedures through which a mortgage lender may foreclose upon the property securing the loan and force its sale. (Code Civ. Proc. §§ 725a-730.5.)
States that government entities may fine the legal owner of a property purchased at a foreclosure sale, or acquired through foreclosure under a mortgage or deed of trust up to $1,000 per day for failure to maintain that property. (Civ. Code § 2929.3)

This bill:

Forbids a foreclosure trustee from bundling properties for sale at a foreclosure auction, instead requiring that each property be bid on separately.
Provides an eligible bidder 45 days after a home foreclosure auction to make an offer for the home that exceeds the highest bid. Defines “eligible bidder” to include:
1. A tenant in the home, a prospective owner-occupant, or a nonprofit in which a prospective owner-occupant or eligible tenant is a voting member or director.
2. An eligible nonprofit based in California whose primary activity is developing and preserving affordable rental housing, a limited partnership for which an eligible nonprofit is the managing general partner; or a limited liability company in which eligible nonprofit corporation is the managing member.
3. A community land trust or a limited-equity housing cooperative.
4. The state, the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
Sunsets the provisions described above effective January 1, 2026.
Declares that nothing in the Civil Code provisions governing mortgage liens exempts the legal owner of property purchased at a foreclosure sale from complying with applicable laws regarding the eviction or displacement of tenants, including but not limited to, notice requirements, requirements for the provision of temporary or permanent relocation assistance, the right to return, and just cause eviction requirements.
Increases the civil fine that a governmental entity can impose on an owner for failing to maintain a property purchased at foreclosure sale, in exchange for providing the owner detailed notice of alleged violations and additional time to remedy them.

Comments

The economic fallout from the COVID-19 pandemic has resulted in widespread job loss and financial distress. This raises the prospect that many California homeowners will soon default on their mortgage payments (if they have not done so already) and a wave of home foreclosures could follow. This bill draws upon lessons learned from what happened in California’s last foreclosure crisis and proposes a trio of mechanisms to try to prevent them from recurring in the event that another wave of foreclosures does hit the state.

The last foreclosure crisis in California struck roughly in the period 2007-2010. Three impacts of that crisis are particularly significant to this bill. First and foremost, the last foreclosure crisis led to a significant decline in homeownership rates. According to the Public Policy Institute of California (PPIC), between 2006 and 2012, the number of owner-occupied housing units in California declined by more than 320,000, while the number of renter-occupied housing units increased by more than 720,000.^{^[1]}

A major factor contributing to this transformation was the entry of institutional investors into the rental market. The quintessential example is Blackstone, an investment firm which is reported to have seized on the relatively cheap price of residential property in depths of the foreclosure crisis to acquire and rent out as many as 13,000 homes in California. Only once the crisis subsided and institutional investors could no longer obtain properties so easily at foreclosure sales did homeownership rates begin to recover.^{^[2]}

The second problem emanating from the last foreclosure crisis was a spate of vacant residential properties. A study of the relationship between foreclosures and residential vacancies conducted shortly after the worst of the last foreclosure crisis found that:

At six months after a sheriff’s sale, a third of foreclosed homes are in an extended period of vacancy. The occupancy of foreclosed homes climbs between seven and 15 months after the sheriff’s sale, but it plateaus after that. In any month from two to five years after the sale, foreclosed homes are two to four times more likely to be vacant than those sold through ordinary transactions.^{^[3]}

Residential vacancies detract from the health of a neighborhood by decreasing the available housing stock and depressing property values. As the recent takeover of a vacant, corporately-owned home in Oakland, California by a group of homeless mothers poignantly demonstrated, residential vacancies are also particularly jarring when juxtaposed with high rates of homelessness.^{^[4]}

The third and related problem that came out of the last foreclosure crisis was a rise in unmaintained properties, causing community blight, and driving adjacent property values down further still. As a Los Angeles Times story written during the crisis described it, “[h]ouses abandoned to foreclosure are beginning to breed trouble, adding neighbors to the growing ranks of victims.” The article observed how:

Stagnant swimming pools spawn mosquitoes, which can carry the potentially deadly West Nile virus. Empty rooms lure squatters and vandals. And brown lawns and dead vegetation are creating eyesores in well-tended neighborhoods.^{^[5]}

Believing the replacement of homeownership with investor owned rentals, prolonged vacancies, and unmaintained residential properties all to be problematic, the author of this bill intends it to fortify California against a repeat of these outcomes in the event that another foreclosure crisis hits the state. The bill employs three distinct strategies to try to achieve this aim.

First, the bill provides tenants, prospective owner-occupants, nonprofit affordable housing providers, community land trusts, limited-equity housing cooperatives, and public entities a 45-day window to purchase residential property through foreclosure if they can match (in the case of tenants) or exceed (in the case of other purchasers) the last and highest bid made on single-family homes at the foreclosure auction. Second, the bill prohibits sales of bundled properties at foreclosure auctions. This is intended to make it more difficult for institutional investors to make bulk purchases of large swaths of residential property. Finally, the bill increases local governments’ authority to assess fines on owners of blighted properties acquired at foreclosure sales, while also requiring local governments to provide these owners with more detail as to the alleged blight and giving owners more time to remedy issues before any fine is assessed against them.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/30/20)

Asian, Inc.

Bend the Arc California

California Coalition for Rural Housing

California Community Economic Development Association

California Low-Income Consumer Coalition

California Reinvestment Coalition

California Rural Legal Assistance Foundation

City of Oakland

Community HousingWorks

Consumer Advocates Against Reverse Mortgage Abuse

East Bay for Everyone

East Bay Housing Organizations

East Los Angeles Community Corporation

Esperanza Community Housing Corporation

Fair Housing Council of San Fernando Valley

Faith and Community Empowerment

Greenlining Institute

Haven Neighborhood Services

Home Preservation and Prevention, Inc

Homeownership San Francisco

Housing California

Inclusive Action for the City

Institute on Aging

Jakara Movement

LA Forward

Mission Economic Development Agency

Neighborhood Partnership Housing Services, Inc.

New Economics for Women

Non-Profit Housing Association of Northern California

Oakland City Council

Opportunity Fund

Public Counsel

Public Law Center

Renaissance Entrepreneurship Center

Richmond Community Foundation

Richmond Land

Simi Valley Democratic Club

Sustainable Economies Law Center

TechEquity Collaborative

Tenants Together

The Two Hundred

Urban Possibilities

Urban Strategies Council

Western Center on Law & Poverty

OPPOSITION: (Verified 8/30/20)

American Financial Services Association

California Association of Realtors

California Bankers Association

California Chamber of Commerce

California Credit Union League

California Land Title Association

California Mortgage Association

California Mortgage Bankers Association

National Rental Home Council

United Trustees Association

ARGUMENTS IN SUPPORT: According to the author:

With the wave of foreclosures during the last recession, large corporate owners purchased single family homes at rock bottom prices, causing owner occupied home ownership to drop, leaving many homes vacant and creating a new corporate home rental asset class with leases that contain onerous fees and many new, and largely unfair, provisions. SB 1079 is aimed at preventing a repeat of this scenario by limiting the bulk sale and purchase of foreclosed homes. During the last financial crisis, large corporations and private investment firms purchased a significant number of foreclosed homes up and down the state. Many homes were flipped for profit, others were kept vacant, and some were held and rented at rents above the prevailing neighborhood market. Such practices reduced the number of available homes, reduced owner occupied home ownership and amplified California’s affordability crisis. […]

Providing tenants, local governments, and nonprofit providers of affordable housing the right to purchase homes that have been kept vacant or are under foreclosure can help ensure these residential units are more available for owner occupants and not used merely for investment purposes. […]

In support of the bill, a coalition of thirty-one organizations writes:

[Our] members were on the front lines of the foreclosure crisis, and saw vast wealth transferred from Black Indigenous and People of Color (BIPOC) communities into the hands of Wall Street, private equity and Real Estate Investment Trust (REIT) firms. This property and wealth transfer deprived first time homebuyers the opportunity to build equity, subjected tenants to problematic landlords, and changed neighborhoods. This bill will help to ensure these mistakes are not repeated.

ARGUMENTS IN OPPOSITION: In opposition, a coalition of nine organizations write:

[W]e understand and appreciate the author's good faith objective of promoting the acquisition of residential properties by owner-occupants. […] Despite all good intentions, we believe this change will not materially increase owner-occupancy in residential neighborhoods, could very well harm owners losing their properties to foreclosure, and will prolong a lack of maintenance of properties, contributing to blight.

ASSEMBLY FLOOR: 49-17, 8/30/20

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Petrie-Norris, Quirk, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Smith, Mark Stone, Ting, Weber, Wood, Rendon

NOES: Bigelow, Brough, Chen, Choi, Cunningham, Megan Dahle, Diep, Flora, Fong, Gallagher, Gray, Kiley, Lackey, Mathis, Obernolte, Patterson, Waldron

NO VOTE RECORDED: Burke, Cooper, Daly, Eggman, Frazier, Maienschein, Mayes, O'Donnell, Ramos, Rodriguez, Salas, Voepel, Wicks

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

8/31/20 0:35:10

**** END ****

Johnson and Cuellar Mejia, The Decline of the Homeowner (Aug. 19, 2014) Public Policy Institute of California https://www.ppic.org/blog/the-decline-of-the-homeowner/ (as of May 19, 2020). ↑
Levin, Data Dig: Big Investment Firms Have Stopped Gobbling Up California Homes (Apr. 4, 2018) CalMatters https://calmatters.org/housing/2018/04/data-dig-big-investment-firms-have-stopped-gobbling-up-california-homes/ (as of May 19, 2020). ↑
Whitaker, Foreclosure-Related Vacancy Rates (Jul. 26, 2011) Federal Reserve Bank of Cleveland https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2011-economic-commentaries/ec-201112-foreclosure-related-vacancy-rates.aspx (as of May 19, 2020). ↑
Cowan and Dougherty, Homeless Mothers Are Removed From an Oakland House (Jan. 15, 2020) New York Times https://www.nytimes.com/2020/01/15/us/oakland-homeless-eviction.html (as of May 19, 2020). ↑
Streitfeld, Blight Moves In After Foreclosures, Los Angeles Times http://www.latimes.com/la-fi-vacant28aug28-story.html (as of May 19, 2020). ↑

SENATE THIRD READING

STR Bill Id:SB 1079

Author:(Skinner)

As Amended Ver:August 24, 2020

Majority vote

SUMMARY:

Forbids a foreclosure trustee from bundling properties for sale at a foreclosure auction, instead requiring that each property be bid on separately. Provides tenants, prospective owner-occupants, nonprofit affordable housing providers, and public entities a 45-day window to purchase residential properties of 1-4 units if they are able to match or exceed the highest bid at a preceding foreclosure auction. Increases the civil fines that local governments can assess against owners who fail to maintain properties acquired at foreclosure sale, while also providing these owners with more information about alleged violations and additional time to remedy violations.

Major Provisions

Forbids a foreclosure trustee from bundling properties for sale at a foreclosure auction, instead requiring that each property be bid on separately.
Provides an eligible bidder 45 days after a home foreclosure auction to make an offer for the home that exceeds the highest bid. Defines "eligible bidder" to include:
1. A tenant in the home, a prospective owner-occupant, or a nonprofit in which a prospective owner-occupant or eligible tenant is a voting member or director.
2. An eligible nonprofit based in California whose primary activity is developing and preserving affordable rental housing, a limited partnership for which an eligible nonprofit is the managing general partner; or a limited liability company in which eligible nonprofit corporation is the managing member.
3. A community land trust or a limited-equity housing cooperative.
4. The state, the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
Sunsets the provisions described above effective January 1, 2026.
Declares that nothing in the Civil Code provisions governing mortgage liens exempts the legal owner of property purchased at a foreclosure sale from complying with applicable laws regarding the eviction or displacement of tenants, including but not limited to, notice requirements, requirements for the provision of temporary or permanent relocation assistance, the right to return, and just cause eviction requirements.
Increases the civil fine that a governmental entity can impose on an owner for failing to maintain a property purchased at foreclosure sale, in exchange for providing the owner detailed notice of alleged violations and additional time to remedy them.

COMMENTS:

The rise of the corporate single-family rental. Between 2007 and 2012, almost 1 million California homes were sold at foreclosure auctions. Many of these homes were purchased by corporate entities (collectively known as "single-family rental companies") that amassed large holdings of single-family homes now operated as rental properties.

The harms of corporate single-family rentals. Single-family rental companies are genuinely new. Before 2010, these companies didn't exist; now there are more than 25, and the number is growing. As early as September 2014, the Federal Reserve Bank of San Francisco raised concerns about this form of ownership:

Single-family rental housing has become the fastest growing component of the rental market. This trend of growing absentee ownership raises important community development questions around the issues of neighborhood stabilization, rental costs, property maintenance, and lost asset building opportunities for potential first-time homebuyers. (https://www.frbsf.org/community-development/publications/community-development-research-briefs/2014/september/the-rise-of-single-family-rentals-in-arizona-california-and-nevada/.)

Every one of these concerns has proven valid:

In 2019, California's homeownership rate—the percentage of California homes owned by their occupants—stood at 54.8%, approximately where it was in 1991, and down from a high of 60.2% in 2006.
Home price appreciation and the rents paid by tenants have both been siphoned off by single-family rental companies, instead of individual owners building equity within communities.
Neighborhood property values are harmed. A University of California Irvine study found that if single-family-rental ownership in a neighborhood went up by 10%, overall property values there went down by 4 to 7%.
Single-family rental companies are slow to complete repairs, even taking years to fix serious problems like leaks, rot, and mold.
A Federal Reserve Bank of Atlanta study showed that single-family rental companies are, on the whole, more likely to evict their tenants than traditional landlords.
Single-family rental companies leave many of their post-foreclosure purchases vacant (such as the Oakland home occupied by Moms 4 Housing last winter).

All of these effects are more pronounced in communities of color because these communities were targeted for subprime lending, which then gave rise to the foreclosure crisis.

COVID-19 as a trigger for another increase in corporate ownership of single-family homes. Data shows that the COVID-19 pandemic may trigger another wave of foreclosures. Investors are fully aware of this opportunity. The Wall Street Journal reports, "A growing number of property investors are preparing for what they believe could be a once-in-a generation opportunity to buy distressed real-estate assets at bargain prices." If the status quo described above—with reduced wealth-building opportunities for families, poor landlord behavior, vacant properties, and racially disparate impacts on communities—is unacceptable, this bill offers a means for California to avoid repeating its recent past.

How would this bill help limit increased corporate ownership of single-family rental homes and its negative consequences? This bill would ban bundled sales of foreclosed single-family homes. Instead, after a foreclosure auction, three categories of buyers would then have up to 45 days to match or exceed the last and highest offer made at the auction: prospective owner-occupants (individuals who pledge to live in the home for at least one year, a category meant to increase owners' home occupancy); eligible tenant buyers (individuals already renting the home, as well as nonprofits in which the tenant is a voting member or director, a category meant to increase home ownership opportunities for tenants); and eligible bidders (including nonprofit affordable housing providers, community land trusts, limited equity housing cooperatives, and public entities, categories meant to increase the stock of affordable rental housing).

The bill's sunset date of January 1, 2026 should give the Legislature sufficient time to evaluate its effectiveness.

Counterargument #1: eligible bidders under this bill should just purchase properties at auction. This argument is undermined by the way single-family rental companies have captured the auction system, by sending agents to foreclosure auctions equipped with cashier's checks in every possible denomination that might be needed to purchase the properties being auctioned. No ordinary person can afford the fees required to simultaneously obtain this many cashier's checks at one time. Offering these homes for sale only through an auction process means that bidders equipped with hundreds of certified checks will prevail. This bill, recognizing that outcome and its attendant harms, would deliberately restructure the process in order to give the eligible bidders it identifies a chance to participate, with the expectation that the resulting outcome will be better for the state as a whole.

Counterargument #2: this bill will reduce the amount of equity the foreclosed borrower can ultimately recoup. This argument is entirely speculative. It may be that the process created by this bill has exactly the opposite effect: that interested buyers might drive up bids in order to outbid any potential eligible bidders during the post-auction 45-day window.

Opening up the bid process will also limit opportunities for bid-rigging by a small group of buyers, a crime the California Department of Justice regularly investigates and prosecutes.

Counterargument #3: lenders will be harmed during the 45-day bid window. Numerous states (including Alabama, Maryland, Michigan, Minnesota, Missouri, North Carolina, and Tennessee) have enacted nonjudicial foreclosure statutes that provide for a post-sale redemption period, in which foreclosed homeowners can re-acquire homes after a foreclosure sale, by reimbursing the purchaser for the purchase price. Lenders are obviously comfortable with managing properties in these states during the applicable post-foreclosure windows; there is no reason to expect California would be different.

Counterargument #4: this bill is unlawful and unconstitutional. Since 1980, Washington, D.C. has had a Tenant Opportunity to Purchase Act (TOPA), which provides purchase rights to tenants residing in a property if the owner wishes to sell it. One TOPA provision gives tenants a 15-day right to match any third-party contract. No court has found this TOPA provision unlawful or unconstitutional, despite the fact that it interposes a tenant into an already-executed contract between the owner and the third-party buyer. What this bill proposes is far short of TOPA, as every bidder lacks settled contractual expectations and enters the foreclosure auction fully aware that a bid may be beaten by an offer made by one of the eligible bidders.

Addressing blight. According to the author, the City of Richmond, in her district, has at times been unable to obtain timely owner compliance even when utilizing the $1,000/day fine, perpetuating post-foreclosure neighborhood blight. Current California law requires the legal owner of property acquired at a foreclosure sale to maintain the property, and permits local governments to fine owners up to $1,000/day for a failure to maintain their property, after the government provides owners with notice, an opportunity to cure the violation, and an opportunity for a hearing. (Civil Code Section 2929.3.)

In response, this bill would require local governments to provide owners with detailed notices describing any alleged violations and additional time to fix them. Only if an owner failed to bring the property into compliance within this time would local governments be permitted to fine the owner: up to $2,000/day for 30 days, and then up to $5,000/day thereafter.

According to the Author:

With the wave of foreclosures during the last recession, large corporate owners purchased single family homes at rock bottom prices, causing owner occupied home ownership to drop, leaving many homes vacant and creating a new corporate home rental asset class with leases that contain onerous fees and many new, and largely unfair, provisions. SB 1079 is aimed at preventing a repeat of this scenario by limiting the bulk sale and purchase of foreclosed homes. […] Providing tenants, local governments, and nonprofit providers of affordable housing the right to purchase homes that have been kept vacant or are under foreclosure can help ensure these residential units are more available for owner occupants and not used merely for investment purposes.

Arguments in Support:

A coalition of thirty-one organization argues against repeating the mistakes of the recent past:

Arguments in Opposition:

A coalition of nine bill opponents contends that the bill will fail to achieve its goals:

FISCAL COMMENTS:

None

VOTES:

SENATE FLOOR: 30-10-0

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener, Wilk

NO: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen

ASM JUDICIARY: 8-1-2

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Limón, Reyes

NO: Obernolte

ABS, ABST OR NV: Gallagher, Kiley

UPDATED:

VERSION: August 24, 2020

CONSULTANT: Jith Meganathan / JUD. / (916) 319-2334 FN: 0003290

SENATE THIRD READING

STR Bill Id:SB 1079

Author:(Skinner)

As Amended Ver:August 10, 2020

Majority vote

SUMMARY:

Major Provisions

Forbids a foreclosure trustee from bundling properties for sale at a foreclosure auction, instead requiring that each property be bid on separately.
Provides an eligible bidder 45 days after a home foreclosure auction to make an offer for the home that exceeds the highest bid. Defines "eligible bidder" to include:
1. A tenant in the home, a prospective owner-occupant, or a nonprofit in which a prospective owner-occupant or eligible tenant is a voting member or director.
2. An eligible nonprofit based in California whose primary activity is developing and preserving affordable rental housing, a limited partnership for which an eligible nonprofit is the managing general partner; or a limited liability company in which eligible nonprofit corporation is the managing member.
3. A community land trust or a limited-equity housing cooperative.
4. The state, the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
Sunsets the provisions described above effective January 1, 2026.
Declares that nothing in the Civil Code provisions governing mortgage liens exempts the legal owner of property purchased at a foreclosure sale from complying with applicable laws regarding the eviction or displacement of tenants, including but not limited to, notice requirements, requirements for the provision of temporary or permanent relocation assistance, the right to return, and just cause eviction requirements.
Increases the civil fine that a governmental entity can impose on an owner for failing to maintain a property purchased at foreclosure sale, in exchange for providing the owner detailed notice of alleged violations and additional time to remedy them.

COMMENTS:

The rise of the corporate single-family rental. Between 2007 and 2012, almost one million California homes were sold at foreclosure auctions. Many of these homes were purchased by corporate entities (collectively known as "single-family rental companies") that amassed large holdings of single-family homes now operated as rental properties.

Every one of these concerns has proven valid:

In 2019, California's homeownership rate—the percentage of California homes owned by their occupants—stood at 54.8%, approximately where it was in 1991, and down from a high of 60.2% in 2006.
Home price appreciation and the rents paid by tenants have both been siphoned off by single-family rental companies, instead of individual owners building equity within communities.
Neighborhood property values are harmed. A UC Irvine study found that if single-family-rental ownership in a neighborhood went up by 10%, overall property values there went down by 4 to 7%.
Single-family rental companies are slow to complete repairs, even taking years to fix serious problems like leaks, rot, and mold.
A Federal Reserve Bank of Atlanta study showed that single-family rental companies are, on the whole, more likely to evict their tenants than traditional landlords.
Single-family rental companies leave many of their post-foreclosure purchases vacant (such as the Oakland home occupied by Moms 4 Housing last winter).

All of these effects are more pronounced in communities of color because these communities were targeted for subprime lending, which then gave rise to the foreclosure crisis.

The bill's sunset date of January 1, 2026 should give the Legislature sufficient time to evaluate its effectiveness.

Opening up the bid process will also limit opportunities for bid-rigging by a small group of buyers, a crime the California Department of Justice regularly investigates and prosecutes.

Counterargument #4: this bill is unlawful and unconstitutional. Since 1980, Washington, D.C. has had a Tenant Opportunity to Purchase Act (TOPA), which provides purchase rights to tenants residing in a property if the owner wishes to sell it. One TOPA provision gives tenants a 15-day right to match any third-party contract. No court has found this TOPA provision unlawful or unconstitutional, despite the fact that it interposes a tenant into an already-executed contract between the owner and the third-party buyer. What SB 1079 proposes is far short of TOPA, as every bidder lacks settled contractual expectations and enters the foreclosure auction fully aware that a bid may be beaten by an offer made by one of the eligible bidders.

According to the Author:

With the wave of foreclosures during the last recession, large corporate owners purchased single family homes at rock bottom prices, causing owner occupied home ownership to drop, leaving many homes vacant and creating a new corporate home rental asset class with leases that contain onerous fees and many new, and largely unfair, provisions. SB 1079 is aimed at preventing a repeat of this scenario by limiting the bulk sale and purchase of foreclosed homes. […] Providing tenants, local governments, and nonprofit providers of affordable housing the right to purchase homes that have been kept vacant or are under foreclosure can help ensure these residential units are more available for owner occupants and not used merely for investment purposes.

Arguments in Support:

A coalition of thirty-one organization argues against repeating the mistakes of the recent past:

Arguments in Opposition:

A coalition of nine bill opponents contends that the bill will fail to achieve its goals:

FISCAL COMMENTS:

None

VOTES:

SENATE FLOOR: 30-10-0

NO: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen

ASM JUDICIARY: 8-1-2

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Limón, Reyes

NO: Obernolte

ABS, ABST OR NV: Gallagher, Kiley

UPDATED:

VERSION: August 10, 2020

CONSULTANT: Jith Meganathan / JUD. / (916) 319-2334 FN: 0003187

Date of Hearing: August 12, 2020

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 1079

Author:(Skinner) – As Amended Ver:August 10, 2020

SENATE VOTE: 30-10

SUBJECT: Residential property: foreclosure: SALES

KEY ISSUE: SHOULD CALIFORNIA ALLOW TENANTS, PROSPECTIVE OWNER-OCCUPANTS, NONPROFIT AFFORABLE HOUSING PROVIDERS, AND PUBLIC ENTITIES AN OPPORTUNITY TO MATCH OR EXCEED THE HIGHEST OFFER MADE AT A FORECLOSURE AUCTION IN ORDER TO INCREASE owner occupancy of single family homes, SAFEGUARD AGAINST tenant displacement, protect communities from the negative effects caused by CORPORATE ownership of HOMES THAT ENTER FORECLOSURE?

SYNOPSIS

This important author-sponsored bill seeks to curb further purchases of single-family homes at foreclosure auctions by companies that then operate them as rental properties. This business model, which has developed over the past decade, strips the middle class of assets, leads to abuses of tenants, leaves many properties vacant, and has a significantly negative effect on communities of color. This bill would do the following:

Provide tenants, prospective owner-occupants, nonprofit affordable housing providers, community land trusts, limited-equity housing cooperatives, and public entities a 45-day window to match (in the case of tenants) or exceed (in the case of other purchasers) the last and highest bid made on single-family homes at foreclosure auctions, and if they do so, grant them title.
Prohibit sales of bundled properties at foreclosure auctions.
Increase local governments’ authority to assess fines on owners of blighted properties acquired at foreclosure sales, while also requiring local governments to provide these owners with more detail as to the alleged blight and giving owners more time to remedy issues before assessing fines.

This analysis addresses four counterarguments raised by the opposition: that the bill is unnecessary because interested buyers are currently already free to bid at foreclosure auctions; that it will reduce the amount of equity foreclosed borrowers ultimately recoup; that lenders will be harmed by the additional waiting period; and that the bill is unlawful and unconstitutional.

This bill is supported by over 30 nonprofit organizations, including the California Reinvestment Coalition and the Western Center on Law & Poverty. It is opposed by 11 industry groups, including the California Bankers Association and the National Rental Home Council.

SUMMARY: Provides tenants, prospective owner-occupants, nonprofit affordable housing providers, and public entities a 45-day window to purchase residential properties of 1-4 units if they are able to match or exceed the highest bid at a preceding foreclosure auction. Increases the civil fines that local governments can assess against owners who fail to maintain properties acquired at foreclosure sale, while also providing these owners with more information about alleged violations and additional time to remedy violations. Specifically, this bill:

Forbids a foreclosure trustee from bundling properties for sale at a foreclosure auction, instead requiring that each property be bid on separately. The only exception to this restriction is if the deed of trust or mortgage requires otherwise.
Defines a “prospective owner-occupant” as a natural person who presents an affidavit to a foreclosure trustee that they:
1. Will occupy a property acquired through a foreclosure sale within 60 days of when the trustee’s deed upon sale is recorded and for at least one year thereafter;
2. Are not the previous homeowner, or the child, spouse, or parent of the previous homeowner; and
3. Are not acting as the agent of any other person or entity in purchasing the property.
Defines an “eligible tenant buyer” as a natural person who at the time of the trustee’s sale:
1. Is occupying the real property as their primary residence;
2. Is occupying the real property under a rental or lease agreement entered into as the result of an arm’s length transaction with the previous owner prior to the date on which a Notice of Default was recorded against the property; and
3. Is not the previous homeowner, or the child, spouse, or parent of the previous homeowner.
Provides that an eligible tenant buyer can, if they meet the statutory requirements, also be deemed a prospective owner-occupant.
Defines an “eligible bidder” as any of the following:
1. A prospective owner-occupant.
2. An eligible tenant buyer.
3. A nonprofit association, nonprofit corporation, or cooperative corporation in which a prospective owner-occupant or eligible tenant buyer is a voting member or director.
4. An eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
5. A limited partnership in which the managing general partner is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable housing.
6. A limited liability company in which the managing member is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
7. A community land trust, as defined.
8. A limited-equity housing cooperative, as defined.
9. The state, the Regents of the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
Provides that a foreclosure trustee may reasonably rely on an affidavit from a person that they satisfy the requirements of one of the categories described above in 2), 3), and 5).
Enacts a statutory scheme whereby prospective owner-occupants, eligible tenant buyers, and other eligible bidders may acquire properties consisting of one to four residential units offered at a foreclosure auction by matching or exceeding the last and highest offer made at the auction, as follows:
1. If a prospective owner-occupant made the last and highest bid at the foreclosure auction, then that person will take title to the property.
2. Otherwise, a 15-day window opens after the foreclosure sale.
3. During this 15-day window, a representative of all of the current tenants in the property has a right of first refusal to match the foreclosure sale price. If, at any time during the 15-day window, this representative matches the foreclosure sale price, the sale is immediately deemed final and the tenants will take title to the property.
4. During the same 15-day window, any current tenant in the property and all other eligible bidders can submit higher offers than the foreclosure sale price OR a non-binding notice of intent to bid.
5. If neither of these occurs, the party that made the last and highest offer at the initial foreclosure auction will take title to the property.
6. Otherwise, if either of these occurs, an additional window opens up which lasts until 45 days after the foreclosure sale.
7. During the 45-day window, a representative of all of the current tenant in the house again has a right of first refusal to match the foreclosure sale price. If, at any time during the 45 days, this representative matches the foreclosure sale price, the sale is immediately deemed final and the tenant will take title to the property.
8. During the same 45-day window, any current tenant in the property and all other eligible bidders can submit higher offers than the foreclosure sale price.
9. If, during the 45 days, one or more of the eligible bidders submits a bid that exceeds the foreclosure sale price, the sale is deemed final at the conclusion of the 45 days, and the eligible bidder that made the highest offer will take title to the property.
10. Otherwise, the sale is deemed final at the conclusion of the 45 days, and the party that made the last and highest offer at the initial foreclosure auction will take title to the property.
Requires the foreclosure trustee to make available the date on which the foreclosure auction took place, the amount of the last and highest bid, and the address at which it can receive mail and overnight deliveries. Specifies that this information must be made available within 48 hours of the conclusion of the foreclosure auction via internet and telephone.
Specifies that the notice of foreclosure sale for a property consisting of one to four residential units include a specified “NOTICE TO TENANT,” which includes a summary of the right to purchase the property, and an internet website address and a telephone number at which information about the sale date, the amount of the last and highest bid, and trustee’s address can be obtained, 24 hours a day, seven days a week, using a specific case file number printed on the notice.
Establishes that, so long as the trustee’s deed upon sale is recorded within 45 calendar days of the foreclosure sale, that it shall be deemed perfected as of 8 a.m. on the date the foreclosure sale was held.
Sunsets the provisions described above effective January 1, 2026.
Declares that no provision of the article of the Civil Code governing mortgage liens relieves the legal owner of real property after a foreclosure sale is final from complying with applicable law regarding the eviction or displacement of tenants, including but not limited to, notice requirements, requirements for the provision of temporary or permanent relocation assistance, the right to return, and just cause eviction requirements.
Permits a governmental entity to impose a civil fine if a legal owner fails to maintain vacant residential property purchased by that owner at a foreclosure sale, provided the following requirements are met:
1. The governmental entity must give the owner a notice that includes a detailed description of the alleged violation.
2. The owner then has a period of not less than 14 business days to begin remedying the violation and to notify the entity of its remedial actions. This period can be extended by an additional 10 business days at the request of the owner if the owner needs clarification as to the remedial actions needed.
3. After this initial period, the owner then has 16 business days to complete remedying the violation.
4. If the owner fails to remedy the violation within the allotted time, then the governmental entity may impose a civil fine of up to $2,000 per day for the next 30 days, and a civil fine of up to $5,000 per day thereafter.
5. The governmental entity must make a hearing and an opportunity to contest the fine available to the owner.

EXISTING LAW:

Requires notice of a foreclosure sale to be given using the methods prescribed in statute, including by posting the notice in a conspicuous place on the property to be sold at least 20 days before the date of sale. Specifies that if the property is a single-family residence, the notice must be posted on the door of the residence, if that is possible. (Civil Code Section 2924f (b)(3). All further statutory references are to this code, unless otherwise indicated.)
Specifies that the notice of foreclosure sale for a property consisting of one to four residential units include a specified “NOTICE TO PROPERTY OWNER,” which includes an internet website address and a telephone number at which information about the sale date and any postponement can be obtained using a specific case file number printed on the notice. (Section 2924f (b)(8).)
Establishes comprehensive procedures for conducting a foreclosure sale in the form of an auction. (Sections 2924g and 2924h.)
Establishes that each and every bid made by a bidder at a foreclosure sale shall be deemed an irrevocable offer by that bidder to purchase the property for the amount of the bid. (Section 2924h (a).)
Establishes that, so long as the trustee’s deed upon sale is recorded within 15 calendar days of the foreclosure sale, that it shall be deemed perfected as of 8 a.m. on the date the foreclosure sale was held. (Section 2924h (c).)
Requires a legal owner to maintain vacant residential property purchased by that owner at a foreclosure sale. Permits a governmental entity to impose a civil fine of up to $1,000 per day for failure to meet this requirement, after providing the owner with notice, a period of not less than 30 days to remedy the violation, and the availability of a hearing and an opportunity to contest the fine. (Section 2929.3.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: California’s last economic crisis caused millions of single-family homes to go into foreclosure. Many of these homes were purchased by corporate investors and turned into rental properties. The result was a decrease in middle-class wealth, abusive landlord practices, vacant properties that were kept off of both the sale and rental markets in the midst of a homelessness crisis, and blight: conditions which have disproportionately harmed communities of color. As the economic crisis precipitated by the COVID-19 pandemic threatens to send many more Californians into foreclosure, this bill offers a means to at least slow this pattern from repeating. According to the author:

SB 1079 has 3 key elements:

(1) Creates window for local governments, public agencies, non-profits, and prospective owner-occupants to purchase homes ahead of investors.

(2) Makes purchase of large number of foreclosed homes at single auction more difficult.

(3) Allows local governments to increase fines on vacant, unmaintained foreclosed properties.

This bill has drawn national attention. Senator Elizabeth Warren and Carroll Fife of the Alliance of Californians for Community Empowerment (ACCE) write:

[T]o prevent predatory companies from further destabilizing neighborhoods and profiting off the displacement of families…[s]tates should also implement protections: In California, state Sen. Nancy Skinner’s S.B. 1079 would bar the bulk sale of auctioned foreclosed properties, give occupants and nonprofits the right of first refusal to buy foreclosed homes, and raise penalties for vacant properties. (Warren & Fife, Families see a looming catastrophe. Private equity firms see dollar signs, Wash. Post (Aug. 6, 2020), available at https://www.washingtonpost.com/opinions/2020/08/06/nation-is-facing-housing-crisis-private-equity-firms-just-see-dollar-signs/.)

As detailed in this analysis, SB 1079 gives California a rare opportunity to learn from, and avoid, the mistakes of its recent past.

The rise of the corporate single-family rental. According to data provided by the Assembly Banking Committee, between 2007 and 2012, almost one million California homes were sold at foreclosure auctions. During the same period, another 750,000 homes changed hands through “REO sales,” that is, private sales of foreclosed properties by lenders. The direct harms (lost homes and lost wealth) inflicted on the owners of these properties, and their tenants, who were evicted through no fault of their own, were both obvious at the time, and unfathomably painful. What has become increasingly evident in the years since are the continuing harms inflicted on Californians, especially our low-income residents and communities of color, as a result of these sales. The harms are largely due to the fact that corporate landlords bought these foreclosed homes. As author Aaron Glantz writes:

Most of the beneficiaries of the foreclosure crisis were not first-time homebuyers who secured a thirty-year fixed mortgage with family support. Instead, they were a new breed of corporate landlord that bought up entire neighborhoods and held homes in shell companies, with the true identities of their owner unknown to most of the new tenants. In Oakland, for example, a nonprofit organization called the Urban Strategies Council found that between January 2007 and October 2011, more than 40 percent of the 10,508 homes that went into foreclosure in the hard-hit city had been purchased by real estate investors—usually with cash. (Glantz, Homewreckers (2019) p. xix.)

Corporate ownership of single-family home rentals is a genuinely new phenomenon. “Before 2010, institutional landlords didn’t exist in the single-family-rental market; now there are 25 to 30 of them.” (Mari, A $60 Billion Housing Grab by Wall Street, N.Y. Times (Mar. 4, 2020), available at https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html.) The trend is only growing. According to a report by ACCE, Americans for Financial Reform, and Public Advocates:

Industry spokespeople portray the single-family rental boom as a temporary phenomenon. But while there has been some retrenchment recently, many of the big players clearly see more growth ahead. [In November 2017,] the merger between Blackstone’s Invitation Homes and Starwood Waypoint Homes was completed, giving the new merged entity, operating as Invitation Homes, approximately 82,000 properties. This makes them the largest landlord of single-family homes in the country and the second largest real-estate company in the world. (ACCE, et al., Wall Street Landlords turn American Dream into a Nightmare, p. 10, available at https://www.publicadvocates.org/wp-content/uploads/ wallstreetlandlordsfinalreport.pdf.)

As early as September 2014, the Federal Reserve Bank of San Francisco released a research brief in which it raised concerns about the effects of corporate ownership of single-family rentals:

Single-family rental housing has become the fastest growing component of the rental market. This trend of growing absentee ownership raises important community development questions around the issues of neighborhood stabilization, rental costs, property maintenance, and lost asset building opportunities for potential first-time homebuyers. (Choi, Federal Reserve Bank of San Francisco, The Rise of Single-Family Rentals in Arizona, California, and Nevada (Sep. 2014) p. 2, available at https://www.frbsf.org/community-development/publications/community-development-research-briefs/2014/september/the-rise-of-single-family-rentals-in-arizona-california-and-nevada/.)

The Fed’s concerns have proven prescient.

The decline of owner-occupancy rates in California and its negative effects. In 2019, California’s homeownership rate—the percentage of California homes owned by their occupants—stood at 54.8%, approximately where it was in 1991. (U.S Census Bureau, Homeownership Rate for California, available at https://fred.stlouisfed.org/series/CAHOWN.) This rate is down from a high of 60.2% in 2006, at the peak of the housing bubble.

Author Aaron Glantz explains the effect that the transformation of single-family homes from owner-occupied to renter-occupied has on household wealth:

Every month, when a homeowner makes a mortgage payment, she basically makes two payments. The first is a tax-deductible check to the bank that covers the interest, and the other is to herself, in the form of additional equity in her home. By buying up large numbers of homes during the bust, real estate magnates removed properties from the market and stole this opportunity from millions of Americans. (Glantz, supra, pp. xxi-xxii.)

The ACCE report quoted above explains how this lost wealth has been transferred to corporate investors:

This increasing dominance of finance as a means of wealth accumulation has resulted in windfall profits for the financial elite, and led to unprecedented levels of wage and wealth inequality by redistributing tenants’ rent payments to wealthy investors and redirecting the benefits of home price appreciation to private equity funds and corporate executives rather than homeowners. (ACCE, supra, p. 28.)

People who have lost the opportunity to buy homes are not the only ones whose wealth has been depleted by corporate entities of various forms that amass large holdings of single-family homes that are operated as rental properties (collectively known as “single-family rental companies”). “Edward Coulson, director of the Center for Real Estate at the University of California, Irvine, found that if single-family-rental ownership in a neighborhood went up by 10 percent, property values went down by 4 to 7 percent.” (Mari, supra.) In other words, significant corporate ownership of single-family homes appears to reduce home values throughout a neighborhood.

Single-family rental companies as landlords. There are numerous reports of single-family rental companies overcharging tenants as part of their business models, failing to timely and properly carry out repairs, and being quick to evict tenants.

According to the ACCE report quoted above, one single-family rental company’s 34-page lease includes the following provisions, which place responsibility for the following maintenance and repair items on tenants:

[R]outine insect control…checking and maintaining smoke and carbon monoxide detectors, maintenance of exterior landscaping… maintenance and repair of the appliances at the premises, repair and maintenance of all sewer and sink backups and blockages [and] repair of any broken glass, regardless of cause. (ACCE, supra, p. 25.)

Last March, The New York Times published a lengthy feature on the single-family rental companies which detailed a litany of abuses perpetrated by such companies against their tenants, many of them in California. It quoted Maya Abood, a researcher at the Massachusetts Institute of Technology, as saying:

What is really dangerous to tenants and communities is the full integration of housing within financial markets…. Because of the way our financial markets are structured, stockholders expect ever-increasing returns. All of this creates so much pressure on the companies that even if they wanted to do the right thing . . . all of the entanglements lead to an incentive of not investing in maintenance, transferring all the costs onto tenants, constantly raising rents. Even little, tiny nickel-and-diming, if it’s done across your entire portfolio, like little fees here and there — you can model those, you can predict those. And then that can be a huge revenue source. (Mari, supra.)

The feature goes on to detail a number of ways in which tenants are squeezed by these landlords: requiring them to pay rent using an online payment portal that charges a $121 “convenience fee,” charging landscaping fees for a landscaper who rarely appears, assessing $35 delivery fees for service of late-payment notices (on top of the late fees themselves), and years-long waits to fix serious problems like leaks, rot, and mold. (Ibid.) While some of this conduct may violate California law, tenants have little recourse to lawyers beyond already-overburdened legal aid attorneys.

Finally, there is evidence that single-family rental companies are more likely to evict their tenants than traditional landlords. In a study of Fulton County, Georgia, the Federal Reserve Bank of Atlanta found “that investor size is correlated with higher levels of housing instability.” They caveat this finding by noting that “there appears to be a company effect, with some firms having significant, and substantially higher eviction rates than other firms….” (Raymond, et al., Corporate Landlords, Institutional Investors,and Displacement: Eviction Rates in Single-Family Rentals, (Dec. 2016) p.19, available at https://www.frbatlanta.org/-/media/documents/community-development/publications/discussion-papers/2016/04-corporate-landlords-institutional-investors-and-displacement-2016-12-21.pdf.)

Single-family rental companies and vacant homes. Last winter, national attention was drawn to the issue of California homes being acquired by corporate investors and then left vacant for months at a time, this in a state with 25% of the nation’s homeless population. The group Moms 4 Housing, made up of homeless mothers and their children, moved into a vacant three-bedroom house in West Oakland and then sought to resist eviction by the Alameda County Sheriff’s Office. As one news story described:

Frustration over inadequate housing policies has sparked a debate over vacant homes and the corporate companies that own them. Last year, the city of Oakland reported having 4,366 vacant properties, including empty homes like the one [Moms 4 Housing] have occupied. Meanwhile, the city has seen a 47% uptick in unhoused people over the last two years….

Wedgewood, a Redondo Beach-based real estate investment company that owns the property, operates real estate investments throughout the Western U.S. and in Florida. According to its website, the company describes itself as “a leading acquirer of distressed residential real estate.” (Solomon, Moms Who Occupied Vacant House in West Oakland Fight Eviction in Court, KQED News (Dec. 16, 2019), available at https://www.kqed.org/news/11791573/moms-4-housing-fights-eviction-in-court.)

Ultimately, the Oakland Community Land Trust (a group that might be an eligible bidder under this bill) was able to negotiate to purchase the home. It is hoped that by giving such groups an opportunity to purchase foreclosed properties, that this bill will lead to lower home vacancy rates and reduced homelessness.

Single-family rental companies and race. The shift from owner occupancy to rentals of single-family housing appears to have had a disparate and harmful impact on people of color. As author Aaron Glantz writes, “You can’t understand the housing bust—or the massive transfer of wealth that occurred as a result—without considering the extremely powerful role that racial discrimination played in determining the winners and losers of our recent economic disaster.” (Glantz, supra, p. 184.)

The New York Times describes the deprivation of wealth-building opportunities for people of color:

“Neighborhoods that were formerly ownership neighborhoods that were one of the few ways that working-class families and communities of color could build wealth and gain stability are being slowly, or not so slowly, turned into renter communities, and not renter communities owned by mom-and-pop landlords but by some of the biggest private-equity firms in the world,” says Peter Kuhns, the former Los Angeles director of the activist group [ACCE]. Around Los Angeles, the companies scooped up properties in the majority-minority areas of South Los Angeles, the San Gabriel Valley, the San Fernando Valley and Riverside. (Mari, supra.)

ACCE’s report cites an analysis by MIT researcher Maya Abood, quoted above, which found that census block groups in California with no homes held by institutional investors have an average 5% African-American population; by comparison, those census block groups with more than 15 homes owned by institutional investors have an average 15% African-American populations. (ACCE, supra, p. 30.) In Los Angeles County, the numbers are 6% and 30%, respectively. (Ibid., pp. 30-31.)

Perhaps most tragically, as noted by Senator Warren and Carroll Fife, “Just a handful of years after Black homeownership hit its highest point, the devastating wave of foreclosures [beginning in 2008 has] wiped out nearly all of the growth in Black homeownership since the Fair Housing Act repealed Jim Crow redlining in 1968.” (Warren & Fife, supra.)

COVID-19 as a trigger for another foreclosure crisis and increase in corporate ownership of single-family homes. Data shows that the COVID-19 pandemic may trigger another wave of foreclosures. U.S. Census Bureau data from July 16-21, 2020 indicates that an estimated 1,176,525 California homeowners were having difficulty paying their home mortgages. Of these, 791,153 did not make their monthly mortgage payments, while another 385,372 obtained a deferral of their monthly payment. In addition, 1,867,615 California homeowners reported having “slight” or “no” confidence in their ability to make their next month’s mortgage payment, representing 13% of the total 14,414,988 estimated homeowners in the state. (U.S. Census Bureau, Week 12 Household Pulse Survey (Jul. 29, 2020), available at https://www.census.gov/data/tables/2020/demo/hhp/hhp12.html.)

News reports show that investors are fully aware of the opportunity presented. The Wall Street Journal reports, “A growing number of property investors are preparing for what they believe could be a once-in-a generation opportunity to buy distressed real-estate assets at bargain prices.” (Putzier & Grant, Real Estate Investors Eye Potential Bonanza in Distressed Sales, Wall Street Journal (Apr. 7, 2020), available at https://www.wsj.com/articles/real-estate-investors-eye-potential-bonanza-in-distressed-sales-11586260801.) The Real Deal, a publication focused on the real estate market, writes:

Single-family rental giant Invitation Homes Inc. is looking to take advantage of low mortgage rates…. The publicly traded company raised $448 million in a share sale in June and plans to use two-thirds of that to buy more properties…. CEO Dallas Tanner said that “housing fundamentals are spectacular in the U.S. right now…. We can certainly handle much more scale on our platform,” he said. “Is that two times our current footprint? Maybe.” The company has been culling its portfolio over the last few years, but it still has around 80,000 properties. Adding another 80,000 may take some time. Many jurisdictions are maintaining restrictions on foreclosures amid the coronavirus pandemic, but a wave of foreclosures may come after moratoriums are lifted. (Staff, Invitation Homes may double its single-family portfolio, The Real Deal (Aug. 8. 2020), available at https://therealdeal.com/miami/2020/08/08/invitation-homes-may-double-its-single-family-portfolio/.)

Laws passed in the wake of the last foreclosure crisis—including California’s Homeowner Bill of Rights (HBOR)—may give owners facing foreclosure a better chance of retaining their homes than before. However, obtaining a loan modification under HBOR depends on the homeowner having sufficient monthly income to afford a modified loan payment. Continued unemployment and small business failures might make demonstrating the necessary income impossible for many homeowners.

If the status quo described above—with reduced wealth-building opportunities for families, poor landlord behavior, vacant properties, and racially disparate impacts on communities—is unacceptable, then California will soon have to decide how to avoid repeating its recent past.

How would this bill help limit increased corporate ownership of single-family rental homes and its negative consequences? The mechanism that this bill provides for non-investors to buy single-family homes is to delineate three categories of buyers, and after a foreclosure auction, provide these buyers up to 45 days to match or exceed the last and highest offer made at the auction. If this happens, in most cases, the buyer that makes the highest bid is deemed the purchaser.

The three categories of buyers are prospective owner-occupants (individuals who pledge to live in the home for at least one year, a category meant to increase owners’ home occupancy); eligible tenant buyers (individuals renting the home, as well as nonprofits in which the tenant is a voting member or director, a category meant to increase home ownership opportunities for tenants); and eligible bidders (which, in addition to the aforementioned prospective owner-occupants and eligible tenant buyers, includes nonprofit affordable housing providers, community land trusts, limited equity housing cooperatives, and public entities, categories meant to increase the stock of affordable rental housing). Item 7) of the SUMMARY of the bill, above, gives a detailed description of how the post-foreclosure auction bid process would work.

It is perhaps unrealistic that this bill, by itself, will stabilize single-family home ownership and tenancies in California. Corporate investors have billions of dollars to spend on foreclosed homes; the level of assets that eligible bidders under this bill may be able to marshal is unknown. It may be that more resources will need to be directed to eligible bidders. But this bill is an important first step. It will at least allow these categories of buyers an opportunity to purchase single-family homes after foreclosure, an opportunity that is largely closed off under present law. The bill’s sunset date of January 1, 2026 should give the Legislature sufficient time to evaluate its efficacy.

Counterargument #1: eligible bidders under this bill should just purchase properties at auction. A coalition of nine bill opponents (American Financial Services Association, California Association of Realtors, California Bankers Association, California Chamber of Commerce, California Credit Union League, California Land Title Association, California Mortgage Association, California Mortgage Bankers Association, National Rental Home Council, and United Trustees Association) argues: “The very people specified in the bill who can buy the property during the 45-day period, all of whom could have bid at the foreclosure sale, will have every incentive to wait until after the sale. … [T]he same entities who could have bid at the foreclosure sale can now wait and bid $1 more than the foreclosure sale amount.” (Emphasis in original.)

This argument—that the eligible bidders identified in this bill have an equal chance to purchase properties at a foreclosure auction—is belied by the way corporate investors have captured the auction system. These investors send agents to foreclosure auctions equipped with cashier’s checks in every possible denomination that might be needed to purchase the properties being auctioned. This agent is thereby equipped to go “one dollar over every other bid until the other bidders concede[].” (Getlen, How corporations are buying up houses – robbing families of the American Dream, N.Y. Post (Jul. 18, 2020), available at https://nypost.com/2020/07/18/corporations-are-buying-houses-robbing-families-of-american-dream/.) No ordinary person could possibly afford the fees required to simultaneously obtain that many cashier’s checks at one time.

Markets, including the market for foreclosed properties, are structured in large part by the law, in this case, the law in the Civil Code governing foreclosures. As Columbia University law professor Katharina Pistor writes:

[M]ost observers treat law as a sideshow when in fact it is the very cloth from which capital is cut. [O]rdinary assets are turned into capital…[through a] process by which lawyers can convert just about any asset into capital. The wealthy often claim special skills, hard work, and the personal sacrifice they themselves or their parents or forefathers have made as justifications for the wealth they hold today. These factors may well have contributed to their fortunes. Yet…[a]ccumulating wealth over long stretches of time requires additional fortification that only a code backed by the coercive powers of a state can offer. (Pistor, The Code of Capital (2019) p. 4.)

California has structured its home foreclosure sale process in such a way that corporate investors will almost certainly win any auction in which they participate, with all of the resulting harms detailed above. Offering these homes for sale only through an auction process means that bidders equipped with hundreds of certified checks will prevail. In other words, corporate single-family rentals are the demonstrated, predictable outcome that California law provides in the market for foreclosed homes. This bill, recognizing that outcome and its attendant harms, would deliberately restructure this market in order to give the eligible bidders it identifies a chance to participate in this market, with the expectation that the resulting outcome will be better for the state as a whole. The opportunity for eligible bidders to participate is the option this bill presents to the Legislature.

Counterargument #2: this bill will reduce the amount of equity the foreclosed borrower can ultimately recoup. The coalition of opponents argues that this bill will depress bid amounts, thereby harming the foreclosed borrower:

The entire objective of the [current] law is to provide an orderly, fair and public process to maximize the sale price at a trustee’s sale. This is not primarily for the benefit of the lender, who is entitled only to the amount of the loan in default and costs. For nearly 100 years, the point of the process is to maximize the foreclosure sale price for the benefit of the borrower, who is entitled to any equity realized above the amount necessary to satisfy the lender.

Therefore, any proposal which discourages bidding at foreclosure sales goes against nearly a century of public policy and threatens to harm owners losing their homes, not lenders. We believe that providing a post-sale, 45-day period for specified persons to “outbid” the purchaser at the foreclosure sale will discourage and depress bidding. (Emphasis in original.)

This argument carries some weight, as, unlike the Great Recession, we are not in a situation where numerous homeowners are underwater on their mortgages after the crash of a housing bubble. Many homeowners may have equity in their homes that they would benefit from retaining to any extent possible.

That said, the opponents’ argument is entirely speculative. It may be that the process created by this bill has exactly the opposite effect: that interested buyers might drive up bids in order to outbid any potential eligible bidders during the post-auction 45-day window.

It is also worth noting that opening up the bid process will tend to limit opportunities for bid-rigging by a small pool of buyers. This is not an idle concern. The California Department of Justice regularly investigates and prosecutes investors for this crime. (See, e.g., Two Real Estate Investors Plead Guilty to Bid Rigging in Northern California (Sep. 20, 2017), available at https://www.justice.gov/opa/pr/two-real-estate-investors-plead-guilty-bid-rigging-northern-california [“Today’s guilty pleas are the result of the Department’s ongoing investigation into bid rigging at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California. To date, 62 individuals have agreed to plead or have pleaded guilty.”])

Counterargument #3: lenders will be harmed during the 45-day bid window. The coalition of opponents argues that the 45-day post-auction window will harm the lender:

During the 45-day period, very negative circumstances can occur, despite attempts to make the bid at the foreclosure sale “irrevocable”. This sounds good in theory but will be ineffective in practice. The successful bidder could file for bankruptcy during the period, cancel the cashier’s check intended to purchase the property, decide to purchase another property, all without any practical or realistic recourse. Again, during this period, the property is likely not being maintained, and property taxes not brought current.

This argument ignores several realities. First, foreclosure auction bids are irrevocable. (Civil Code Section 2924h (a).) Second, cashier’s checks cannot be voided for a period of 90 days from their date of issuance. (Commercial Code Section 3312 (b)(1).) Third, and perhaps most importantly, numerous nonjudicial foreclosure statutes provide for a post-sale redemption period, in which foreclosed homeowners can re-acquire the home after a foreclosure sale by reimbursing the purchaser for the purchase price. States in which these statutes operate include Alabama, Maryland, Michigan, Minnesota, Missouri, North Carolina, South Dakota, Tennessee (subject to loan restrictions), and Wyoming. (See Loftsgordon, Key Aspects of State Foreclosure Law: 50-State Chart, Nolo Press, available at https://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html.) Lenders are obviously comfortable with managing properties during the applicable post-foreclosure windows in these states; there is no reason to expect otherwise in California.

Finally, the author has recently amended the bill to provide for a 15-day initial window in which eligible bidders must either place a bid or submit a non-binding notice of intent to place a bid. If (and only if) one of these happens does the full 45-day window open. The intent of this amendment is to ensure that the lender’s and purchaser’s time is not wasted if there are no eligible bidders interested in buying the property. Nevertheless, bill opponents dismiss this provision, writing:

There have been discussions about providing a shorter window during the 45-day period for entitled persons to file an “expression of interest” in purchasing the property. This too sounds better in theory than in practice. If the property is rented, the tenant will have every incentive to file such an expression, in order to stay in the property as long as possible without paying rent. And there is no realistic way to penalize those who file an expression of interest but cannot or do not follow through with the purchase.

The bill requires that notices be sent to foreclosure trustees by a method which provides for confirmation of delivery within the 15-day window. It is hoped that the relative expense and inconvenience of using such a method will discourage frivolous notices. Also, it is highly unlikely that tenants would have the wherewithal to file a notice—for a mere 15-day delay—unless they had the financial knowledge, sophistication, and support to follow through.

Counterargument #4: this bill is unlawful and unconstitutional. The National Rental Home Council, a group that represents single-family rental home companies, writes: “SB 1079 may also be both inconsistent with contract law and unconstitutional by arbitrarily limiting willing parties from entering into a lawful contract.”

This argument is unpersuasive. Under this bill, no binding contract would be entered into at a foreclosure auction by the last and highest bidder and the lender for the simple reason that the law would prevent such a contract from being formed until the conditions prescribed by the bill are met. The last and highest bidder’s offer cannot be deemed accepted until that time, so there would be no interference with a contract.

As for the constitutional issue, it is worth considering Washington, D.C.’s Tenant Opportunity to Purchase Act, D.C. Code Section 42-3404.01 et seq. (TOPA), which provides purchase rights to tenants residing in a property if the owner wishes to sell it. One TOPA provision, which has been in place since 1980, gives tenants a 15-day right to match any third party contract. (D.C Code Section 42-3404.08 [“In addition to any and all other rights specified in this subchapter, a tenant or tenant organization shall also have the right of first refusal during the 15 days after the tenant or tenant organization has received from the owner a valid sales contract to purchase by a third party”].) No court has found this TOPA provision unconstitutional, despite the fact that it interposes a tenant into an already-executed contract between the owner and the third party buyer. What SB 1079 proposes is far short of TOPA, as every bidder lacks settled contractual expectations and enters the foreclosure auction fully aware that a bid may be superseded by an offer made by one of the eligible bidders identified by this bill.

Addressing blight. Current California law requires the legal owner of property acquired at a foreclosure sale to maintain the property, and permits local governments to fine owners up to $1,000/day for a failure to maintain their property, after the government provides owners with notice, an opportunity to cure the violation, and an opportunity for a hearing. (Civil Code Section 2929.3.) According to the author, the City of Richmond, in her district, has at times been unable to obtain timely owner compliance even when utilizing the $1,000/day fine, perpetuating post-foreclosure neighborhood blight. When the bill was first referred to this Committee, it would have addressed this issue by raising permissible fines to $10,000/day. Opponents protested that fines at such a high level might come to be viewed by local governments as a source of revenue rather than a penalty for noncompliance.

After discussions with bill opponents, the author agreed to modify this provision to provide owners with detailed notice describing any alleged violations and additional time to remedy violations. Only if an owner failed to bring the property into compliance within this time would local governments be permitted to fine the owner: up to $2,000/day for 30 days, and then up to $5,000/day thereafter. The California Apartment Association removed its opposition to the bill based on the author’s agreement to make these amendments.

ARGUMENTS IN SUPPORT: A coalition of thirty-one organization argues against repeating the mistakes of the recent past:

During the wave of foreclosures in the last recession, large corporate owners purchased hundreds of thousands of single-family homes in California, causing owner-occupied homeownership to drop and leaving many homes vacant and unmaintained. This mass corporate buyout also created a new corporate home-rental class with leases that contained onerous fees and many new and largely unfair provisions. Such practices reduced the number of available affordable homes and intensified California’s affordability crisis. […] This bill aims to prevent this same scenario from happening again.

ARGUMENTS IN OPPOSITION: A coalition of nine bill opponents contends that the bill will fail to achieve its goals:

[W]e understand and appreciate the author’s good faith objective of promoting the acquisition of residential properties by owner-occupants. […] Despite all good intentions, we believe this change will not materially increase owner-occupancy in residential neighborhoods, could very well harm owners losing their properties to foreclosure, and will prolong a lack of maintenance of properties, contributing to blight.

REGISTERED SUPPORT / OPPOSITION:

Support

Asian, Inc.

Bend the Arc California

California Reinvestment Coalition

California Coalition for Rural Housing

California Community Economic Development Association (CCEDA)

California Low-Income Consumer Coalition (CLICC)

California Rural Legal Assistance Foundation

City of Oakland

Community HousingWorks

Consumer Advocates Against Reverse Mortgage Abuse (CAARMA)

East Bay for Everyone

East Bay Housing Organizations

East Los Angeles Community Corporation

Esperanza Community Housing Corporation

Fair Housing Council of San Fernando Valley

Faith and Community Empowerment

Greenlining Institute

Haven Neighborhood Services

Home Preservation and Prevention, Inc

Homeownership San Francisco

Housing California

Inclusive Action for the City

Institute on Aging

Jakara Movement

LA Forward

Mission Economic Development Agency (MEDA)

Neighborhood Partnership Housing Services, Inc. (NPHS)

New Economics for Women (NEW)

Non-Profit Housing Association of Northern California (NPHANC)

Oakland City Council

Opportunity Fund

Public Counsel

Public Law Center

Renaissance Entrepreneurship Center

Richmond Community Foundation

Richmond Land

Simi Valley Democratic Club (SVDC)

Sustainable Economies Law Center

TechEquity Collaborative

Tenants Together

The Two Hundred

Urban Possibilities

Urban Strategies Council

Western Center on Law & Poverty

Oppose Unless Amended

Southern California Rental Housing Association

Opposition

American Financial Services Association

California Association of Realtors

California Bankers Association

California Chamber of Commerce

California Credit Union League

California Land Title Association

California Mortgage Association

California Mortgage Bankers Association

National Rental Home Council

United Trustees Association

Analysis Prepared by: Jith Meganathan / JUD. / (916) 319-2334

SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

SB 1079

THIRD READING

Bill No: SB 1079

Author: Skinner (D)

Amended: 6/18/20

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-1, 5/22/20

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Umberg, Wieckowski

NOES: Jones

NO VOTE RECORDED: Borgeas

SENATE APPROPRIATIONS COMMITTEE: 5-2, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Bates, Jones

SUBJECT: Residential property: foreclosure

SOURCE: Author

DIGEST:

This bill proposes a series of measures intended to mitigate against blight, vacancy, and the transfer of residential property ownership from owner-occupants to landlord investors in the event that California experiences a wave of foreclosures.

ANALYSIS:

Existing law:

Sets forth non-judicial procedures through which a lender may foreclose upon the property securing the loan and, through the power of sale contained in any deed of trust or mortgage, force sale of the property at auction. (Civ. Code §§ 2920-2944.10.)
Specifies that all sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. (Civ. Code § 2924g.)
Sets forth judicial procedures through which a mortgage lender may foreclose upon the property securing the loan and force its sale. (Code Civ. Proc. §§ 725a-730.5.)
States that government entities may fine the legal owner of a property purchased at a foreclosure sale, or acquired through foreclosure under a mortgage or deed of trust up to $1,000 per day for failure to maintain that property. (Civ. Code § 2929.3)

This bill:

Provides that, notwithstanding any other law, a sale of property under the power of sale contained in any deed of trust or mortgage shall be subject to the following restrictions:

a) an entity in whose name the property will be titled shall not be permitted to buy more than three properties at trustee sales happening on the same day and in the same county; and

b) a seller shall not bundle properties for the purpose of sale. Each property shall be bid on separately, unless the deed of trust or mortgage provides otherwise.

Raises to $10,000 per day the maximum daily fine that a government entity is authorized to impose on a legal owner of vacant residential property purchased through foreclosure for failure to maintain that property.
Defines “owner-occupants” to mean buyers who will occupy the property as their principal residence within 60 days of closing and will maintain their occupancy for at least one year.
Defines “public entity” to mean the state, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state, including, but not limited to, a community land trust or a nonprofit entity providing affordable housing.
Requires a lender that has foreclosed on a residential real property through the judicial foreclosure process to first offer the property for sale to individuals who will be owner-occupants of the home, or to a public entity that is utilizing public funds to purchase the property, for the first 20 days the property is listed on the market, after which any person may submit an offer to purchase the property and these offers shall be considered along with the offers submitted during the first 20-day listing period.
Requires a trustee managing the sale of a foreclosed upon property to accept offers from individuals who will be owner-occupants of the home, and from a public entity that is utilizing public funds to purchase the property, for 20 days prior to the trustee sale. If any such offer is accepted in writing by both the borrower and the beneficiary lender, the trustee sale shall be postponed and the property may be conveyed by the trustor to the person making the offer according to its terms.

Background

The economic fallout from the COVID-19 pandemic has resulted in widespread job loss and financial distress. This raises the prospect that many California homeowners will soon default on their mortgage payments and a wave of home foreclosures could follow. This bill draws upon lessons learned from what happened in California’s last foreclosure crisis and proposes a trio of mechanisms to try to prevent them from recurring in the event that another wave of foreclosures does hit the state.

Establishing a window of opportunity for public entities and prospective owner-occupants to purchase foreclosed residential properties

This first component of the bill is modeled on an existing federal initiative known as the “First Look” program. The “First Look” program applies to certain properties backed by Government Sponsored Entities (such as Fannie Mae or Freddie Mac). The program creates a 20-day window after a real estate owned property first comes on the market during which only prospective owner occupants may make offers. Investors therefore have to wait until after owner-occupants have had a first shot at securing the property before the investors can try to acquire it for themselves. The idea, according to Fannie Mae’s materials about the program, is to “promote homeownership and contribute to neighborhood stabilization” by “allowing homebuyers to negotiate and purchase foreclosed properties before they are made available to investors.”^[1]

Much like the First Look program, the bill proposes to create a 20 day window during which the foreclosing entity could only entertain offers from prospective owner-occupants. Unlike the First Look program, however, the 20 day window would apply to all post-foreclosure sales scenarios, not just those involving Government Sponsored Entities. Another difference is that, under this bill, “public entities” including government agencies, community land trusts, and non-profit affordable housing organizations could also make offers during the exclusive 20-day window, if they will be using public funds to make the purchase. In this way, the bill prioritizes moving foreclosed properties either back into homeownership or into use as community-owned housing.

Speed bumps to slow high volume purchase of foreclosed homes by large investors

The second component of the bill seeks to reduce the rate and volume at which large institutional investors could purchase residential properties in the event of a new foreclosure crisis. This component consists of two different pieces, both related to what happens during the trustee sale at which foreclosed properties are auctioned off.

First, the bill prohibits the practice of bundling foreclosed homes for sale as a single item. According to the author, such bundling facilitates high volume acquisition by large investors. Not only do a large number of homes go to a single buyer all at once; small investors are also less able to compete because the prices are so much higher. And such bundled sales make no sense at all for prospective owner-occupants, who are looking for a home, not a portfolio of properties. Second, the bill would place a cap on the number of properties that a purchaser could buy at a single trustee sale auction. The idea is to slow the rate at which any one investor could accumulate properties, thus making the sort of consolidation seen during the last foreclosure crisis less likely.

Raising potential fines for leaving properties vacant and unmaintained in the wake of foreclosure sales

Existing law states that the legal owner of vacant residential property purchased at a foreclosure sale, or acquired through foreclosure under a mortgage or deed of trust has a duty to maintain that property. (Civ. Code § 2929.3(a).) Failure to maintain a property, which includes failing to care for the exterior of the property, permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action to prevent trespassers or squatters from remaining on the property, or failing to take action to prevent mosquito larvae from growing in standing water, or other conditions that create a public nuisance, carries with it the possibility of a daily $1,000 fine. (Civ. Code § 2929.3(b).)

The third component of this bill would increase that potential fine to a maximum of $10,000 per day. Most obviously, raising the fine would help to achieve the bill’s intent to mitigate the spread of community blight in the event of another foreclosure crisis. More subtly, however, the raising the potential fine might also serve the bill’s goal of reducing the number of vacant properties in the wake of foreclosure. Since the potential fine applies only to vacant properties that are left unmaintained, increasing the fine might lead property owners to be extra diligent about upkeep, but might also lead them simply to move someone in as soon as possible.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

According to the Senate Appropriations Committee, “This measure would have minimal fiscal impact to the state.”

SUPPORT: (Verified 6/24/20)

California Rural Legal Assistance Foundation

East Bay Housing Organizations

Oakland City Council

TechEquity Collaborative

Western Center on Law & Poverty

OPPOSITION: (Verified 6/24/20)

California Apartment Association

California Bankers Association

California Community Banking Network

California Land Title Association

California Mortgage Association

California Mortgage Bankers Association

California Rental Housing Association

Fieldstead & Company

National Rental Home Council

Southern California Rental Housing Association

United Trustees Association

ARGUMENTS IN SUPPORT: According to the author:

In support, Western Center on Law & Poverty and the California Rural Legal Assistance Foundation write:

In the wake of the COVID-19 pandemic, we must not repeat mistakes made leading up to and during the last recession, and we must keep in mind the lessons of the foreclosure crisis. In the wake of that crisis, we saw a massive transfer of equity out of low-income communities and into the hands of speculative investors, resulting in deterioration of our housing stock, an exacerbation of the racial wealth gap, and the rise of questionable practices such as the bundling and securitization of rents which left tenants suffering at the hands of corporate landlords beholden to stockholders.

SB 1079 is a simple, straightforward measure to limit the practices which could lead to corporate control over our neighborhoods given the scale of homeowners potentially facing foreclosure.

ARGUMENTS IN OPPOSITION: In opposition to the bill, the National Rental Home Council writes:

Foreclosure sales are intended to satisfy unpaid financial obligations, sometimes including unpaid property taxes to local governments. The foreclosure marketplace is also often comprised of properties that need repairs. Limiting the universe of buyers who have the intent and wherewithal to bring the past due financial obligations current and invest in any necessary repairs to renovations could have the unintended consequences of slowing the renewed availability of foreclosed properties for residential housing.

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

6/24/20 12:18:53

**** END ****

Find a Home During First Look, Fannie Mae https://www.homepath.com/firstlook-program.html (as of May 19, 2020). ↑

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 1079 (Skinner) - Residential property: foreclosure


Version:	Policy Vote:
Urgency:	Mandate:
Hearing Date:	Consultant:

Bill Summary:

SB 1079 would, among other things, require trustees to provide prospective owner-occupants and public entities, as those terms are defined, an opportunity to bid on foreclosed real property before all others; limit the bundling of properties, and the number of properties purchased by a person, during foreclosure sales, as specified; and increase the maximum fine a jurisdiction may impose on an owner of unoccupied foreclosed property for failing to maintain the property.

Fiscal Impact:

The Department of Housing and Community Development (HCD) reports one-time costs of $615,000 and ongoing annual costs of $581,000 for 1.0 HCD Specialist I and 2 HCD Representatives II to create a database of interested entities, complete the registration process, process applications, send out information, and compile this list for emission, upon request. Additionally, the department anticipates $100,000 in one-time database contracting costs for assistance in creating the database. (General Fund)

The costs for HCD to determine the sale of which properties would prompt the notifications is unknown. The current version of this bill does not require sellers to notify HCD of a sale of the targeted properties. The department would need to explore the availability of private databases that foreclosures. Absent any such pre-existing services, the costs to HCD to carry out the tasks that would be required by this measure could be considerably higher if it is required to dedicate resources to search for which property sales would trigger the notice requirement.

Background:

In California, there are two avenues by which a mortgagee (i.e., the lender) may seek to foreclose on a mortgage (i.e., a loan that is secured by real property): a judicial foreclosure, in which the action is filed in court, and a non-judicial foreclosure, in which the mortgagee or beneficiary exercises the power-of-sale clause in a deed of trust or mortgage. Broadly speaking, each option differs in process and the remedies that are available. For example, a non-judicial foreclosure is quicker (and therefore more common), but the lender is prohibited from obtaining a deficiency judgement against the borrower if the sale of the property is insufficient to satisfy the debt owed. Under both circumstances, if the foreclosure proceeds to completion, the property is sold at a trustee sale (i.e., a public auction) to the highest bidder. Any person or entity may make a bid to purchase property at a trustee sale. If there is no successful bid, the lender assumes ownership and, generally, attempts to sell the property on the open market.

California requires the owner of vacant residential property purchased at a foreclosure sale, or acquired through foreclosure under a mortgage or deed of trust, to maintain that property. Existing law allows a governmental entity to impose a civil fine of up to $1,000 for each day that the owner fails to maintain the property, subject to the owner being given an opportunity to cure the violation, as specified.

Proposed Law:

This bill would:

Require a trustee, during the 20-day period before the date of sale, to receive offers from individuals who would be owner-occupants, as defined, of the home and from a public entity, as defined, that is using public funds to purchase the property. An offer from a prospective owner-occupant must be accompanied by an owner-occupant certification.
Prohibit a person from buying more than three properties in the same county on the same date at trustee sale with respect to properties that are being sold through the exercise of a power-of-sale clause. A “person” for these purposes would be defined as the entity in whose name title to the property is recorded.
Prohibit a trustee from bundling properties for the purpose of sale and instead require each property to be bid on separately, unless the deed of trust or mortgage provides otherwise.
Increase the maximum civil fine to $10,000 per day that a jurisdiction may impose on an owner of vacant residential property purchased at a foreclosure sale or acquired through foreclosure for failing to maintain the property.
Require, for judicially-foreclosed-upon property, the mortgagee to offer that property first to individuals who will be owner-occupants of the home or to a public entity that is using public funds to purchase the property, for the first 20 days the property is listed. An owner-occupant purchaser would be required to sign a specified certification.
Require HCD to establish a process whereby a city, county, community land trust (as defined), or housing sponsor may register with the department to receive notification of a foreclosure sale of residential real property that would be subject to this measure. The department would be required to notify each entity that has registered with it upon recipient of specified notices and to provide a list of each registered entity upon request.

Related Legislation:

AB 828 (Ting, 2019-2020 Reg. Sess.) would, among other things, impose a moratorium on residential foreclosures during any COVID-19-related state of emergency and for 15 days thereafter. AB 828 is pending in the Senate Committee on Rules.

SB 1447 (Bradford, 2019-2020 Reg. Sess.) would expand Homeowner Bill of Rights protections to homeowners who rent their properties out to tenants, as specified; re-enact a provision of California’s advance fee ban that had been allowed to sunset; and expand California’s foreclosure consultant law to cover actions taken to prevent foreclosure prior to a mortgage delinquency. SB 1447 is pending on the Senate floor.

Recommended Amendments:

Proposed Health and Safety Code section 50415, subdivisions (a) and (b) reference code sections and subdivisions that do not exist currently nor would they be established by the current version of this measure. Specifically, the references are to Civil Code section 1954.63 and Code of Civil Procedure section 726.7, subdivision (c)(2). It is recommended that the author correct these erroneous cross references.

Additionally, as pointed out by the Senate Committee on Housing (as relayed in the analysis of this bill by the Senate Committee on Judiciary), “while this bill requires HCD to create a list and distribute information regarding foreclosures for those who request to be on a list, it appears that the requirement for sellers to notify HCD of foreclosure sales was inadvertently deleted. Moving forward, the author may wish to address this oversight.”

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: SB 1079 (Author:Skinner)

Version: May 13, 2020

Hearing Date: May 22, 2020

Fiscal: Yes

Urgency: No

Consultant: TSG

SUBJECT

Residential property warehousing

DIGEST

EXECUTIVE SUMMARY

The last foreclosure crisis, which took place between roughly 2007 and 2010, changed many California communities profoundly. Investors, seeing an opportunity to purchase a large volume of residential housing at a significant discount, bought up homes and entered the residential rental business. The number of owner-occupants declined, replaced by tenants. At the same time, the rapid turnover in ownership left many properties vacant and, in some instances, unmaintained. This bill is designed to try to prevent similar things from occurring in the event that a new wave of foreclosures strikes California, as now seems possible as a result of the COVID-19 pandemic. The bill employs three strategies to try to achieve that aim: (1) it creates a window of opportunity, modeled after the federal “First Look” program, for public entities and prospective owner-occupants to purchase foreclosed homes ahead of investors; (2) it modifies the rules governing trustee sales to make high-volume purchasing of foreclosed homes more difficult; and (3) it raises the potential amount that local entities can fine the purchasers of foreclosed homes if they leave those properties vacant and unmaintained.

The bill is author-sponsored. Support is from equity and affordable housing advocates. Opposition comes from landlord trade associations.

NOTE REGARDING INPUT FROM OTHER SENATE POLICY COMMITTEES

Due to the COVID-19 Pandemic and the unprecedented nature of the 2020 Legislative Session, all Senate Policy Committees are working under a compressed timeline. This timeline does not allow this bill to be referred and heard by more than one committee, as a typical timeline would allow. In order to fully vet the contents of this measure for the benefit of Senators and the public, this analysis includes information from the Senate Committee on Governance and Finance and the Senate Committee on Housing.

PROPOSED CHANGES TO THE LAW

Existing law:

Sets forth non-judicial procedures through which a lender may foreclose upon the property securing the loan and, through the power of sale contained in any deed of trust or mortgage, force sale of the property at auction. (Civ. Code §§ 2920-2944.10.)
Specifies that all sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. (Civ. Code § 2924g.)
Sets forth judicial procedures through which a mortgage lender may foreclose upon the property securing the loan and force its sale. (Code Civ. Proc. §§ 725a-730.5.)
States that government entities may fine the legal owner of a property purchased at a foreclosure sale, or acquired through foreclosure under a mortgage or deed of trust up to $1,000 per day for failure to maintain that property. (Civ. Code § 2929.3)

This bill:

Provides that, notwithstanding any other law, a sale of property under the power of sale contained in any deed of trust or mortgage shall be subject to the following restrictions:

a) a purchaser shall not be permitted to buy more than three properties at any auction regardless of the seller of the property; and

b) a seller shall not bundle properties for the purpose of sale. Each property shall be bid on separately.

Raises to $10,000 per day the maximum daily fine that a government entity is authorized to impose on a legal owner of vacant residential property purchased through foreclosure for failure to maintain that property.
Defines “owner-occupants” to mean buyers who will occupy the property as their principal residence within 60 days of closing and will maintain their occupancy for at least one year.
Defines “public entity” to mean the state, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state, including, but not limited to, a community land trust or a nonprofit entity providing affordable housing.
Requires a lender that has foreclosed on a residential real property through the judicial foreclosure process to first offer the property for sale to individuals who will be owner-occupants of the home, or to a public entity that is utilizing public funds to purchase the property, for the first 20 days the property is listed on the market, after which any person may submit an offer to purchase the property and these offers shall be considered along with the offers submitted during the first 20-day listing period.
Directs the Department of Housing and Community Development to establish a process whereby a city, county, community land trust, or housing sponsor may register with the department in order to receive specified notifications regarding upcoming foreclosure sales of residential real property.

COMMENTS

Background

The economic fallout from the COVID-19 pandemic has resulted in widespread job loss and financial distress. This raises the prospect that many California homeowners will soon default on their mortgage payments and a wave of home foreclosures could follow. This bill draws upon lessons learned from what happened in California’s last foreclosure crisis and proposes a trio of mechanisms to try to prevent them from recurring in the event that another wave of foreclosures does hit the state.

2. Establishing a window of opportunity for public entities and prospective owner-occupants to purchase foreclosed residential properties

This first component of the bill is modeled on an existing federal initiative known as the “First Look” program. The “First Look” program creates a 20-day window after a real estate owned property first comes on the market during which only prospective owner occupants may make offers. Investors therefore have to wait until after owner-occupants have had a first shot at securing the property before the investors can try to acquire it for themselves. The idea, according to Fannie Mae’s materials about the program, is to “promote homeownership and contribute to neighborhood stabilization” by “allowing homebuyers to negotiate and purchase foreclosed properties before they are made available to investors.”^[6]

Much like the First Look program, the bill proposes to require lenders to offer foreclosed-upon residential properties for sale only to prospective owner occupants for the first 20 days that the properties are on the market. Unlike the First Look program, however, under this bill, “public entities” including government agencies, community land trusts, and non-profit affordable housing organizations could also make offers during the exclusive 20-day window, if they will be using public funds to make the purchase. In this way, the bill prioritizes moving foreclosed properties either back into homeownership or into use as community-owned housing.

In correspondence to the Committee, the California Association of Realtors writes approvingly of the “First Look” program and states that it would support the bill’s proposed adoption of such a program in California, but only if limited to apply to those real estate owned properties that are backed by a Government Sponsored Entity such as FHA, Fannie Mae, and Freddie Mac.

It is possible to question how much impact the bill would have as currently drafted. In the version in print, the bill would apply its modified First Look model to residential properties emerging for sale out of the judicial foreclosure process only. Since the overwhelming majority of California foreclosures take place through the non-judicial foreclosure process, the current version of the bill would only apply to an extremely limited number of properties. The author therefore proposes to offer amendments in Committee that would adapt and extend the bill’s modified First Look concept to the non-judicial foreclosure process as well.

Existing law already permits the trustee overseeing the non-judicial sale of a property to receive purchase offers in the 10 days leading up to the noticed sale at auction. If both the lender and the borrower who was foreclosed-upon agree to accept one of those offers, the trustee sale is postponed in order to let the agreed upon transaction proceed. (Civ. Code § 2924f(c)(4).) In much the same way, under the proposed amendment, the trustee would be obligated to receive offers from prospective owner occupants and from public entities in the 20 days leading up to the noticed sale at auction as well. In this way, the modified First Look program would be replicated in the non-judicial foreclosure context.

Conceptually, at least, this amendment makes sense and should act to greatly increase the impact of the bill. However, the non-judicial foreclosure process is complex and further vetting will be needed to determine whether and exactly how the proposed amendment would work in practice. Assuming that the bill passes out of Committee, therefore, the author may wish to consult with lenders, trustees, realtors, and community housing providers on further refinements to this new aspect of the bill.

A promising and possibly simpler alternative approach to applying the modified First Look program to sales of homes emerging from the non-judicial foreclosure would be to move the 20-day exclusive offer window until after the trustee sale. Under this alternative, if the foreclosing entity elects to retain the property and sell it on the open market, then that foreclosing entity would be limited to taking offers from prospective owner-occupants and public entities for the first 20 days. Utilizing this approach would result in a smaller pool of foreclosed homes passing through the modified First Look program, because many of the properties will be sold at the trustee auction. However, because this approach avoids meddling in the non-judicial foreclosure process itself, it might be simpler to implement.

3. Speed bumps to slow high volume purchase of foreclosed homes by large investors

First, the bill would prohibit the practice of bundling foreclosed homes for sale as a single item. According to the author, such bundling facilitates high volume acquisition by large investors. Not only do a large number of homes go to a single buyer all at once; small investors are also less able to compete because the prices are so much higher. And such bundled sales make no sense at all for prospective owner-occupants, who are looking for a home, not a portfolio of properties. Second, the bill would place a cap on the number of properties that a purchaser could buy at a single trustee sale auction. The idea is to slow the rate at which any one investor could accumulate properties, thus making the sort of consolidation seen during the last foreclosure crisis less likely.

Opponents to the bill highlight that the purpose behind conducting a trustee sale auction is to obtain the highest possible price for the property, both so that the lender has the best possible chance of recouping its money and so that the foreclosed-upon borrower has the best possible chance of getting back any surplus. They point out that if an auction participant reaches their maximum permissible number of purchases under the bill, that participant will not be able to bid on any further properties, thus lowering the competition and, ultimately, the price that can be obtained. Similarly, it can be argued that bundling properties together at auction helps raise the price that can be obtained for certain less desirable properties, by mixing the less marketable properties in with others.

The opposition also wonders whether the trustee sale modifications proposed by the bill would actually result in greater homeownership rates. Properties purchased at a trustee sale come “as is,” may come with liens that the purchaser is obligated to clear, and the sales price generally must be paid on the spot. Trustee sales are not generally a very attractive or viable way for owner-occupants to purchase a home, therefore. As a result, the trustee sale modifications proposed by the bill might only serve to diversify which investors get the properties, rather than aiding prospective homeowners.

4. Raising potential fines for leaving properties vacant and unmaintained in the wake of foreclosure sales

The proposed new amount of the fine is hefty. Opponents of this aspect of the bill point out that the fines could quickly add up to exceed the value of the property. On the other hand, the $10,000 daily fine is the absolute maximum authorized by the bill. In practice, many fines might be considerably less. Still, the opponents question whether there is any evidence that additional deterrence is needed.

5. Additional information from the Senate Governance and Finance Committee

“The Senate Governance and Finance Committee is responsible for hearing legislation pertaining to local government. A previous version of the bill made changes to local government responsibilities. The current version of the bill increases the maximum fine a governmental entity, including a local government, can impose on a legal owner for unmaintained and vacant residential property, but does not substantially change the responsibilities of local governments.”

6. Additional information from the Senate Housing Committee

“The Senate Housing Committee considers production and preservation of housing a top priority for the Legislature. This bill aims to help maximize the state’s supply of single-family homes by making it easier for public entities and prospective owner-occupants to purchase foreclosed homes, in response to the current practice of large investors buying these properties in bulk and then often letting them sit vacant. The Committee notes that while this bill requires HCD to create a list and distribute information regarding foreclosures for those who request to be on a list, it appears that the requirement for sellers to notify HCD of foreclosure sales was inadvertently deleted. Moving forward, the author may wish to address this oversight.”

7. Proposed amendments

In order to address the issues set forth in the Comments, above, the author proposes to incorporate amendments into the bill that would, among other things:

take the bill’s “first look” provisions for the judicial foreclosure process and apply them to the non-judicial foreclosure context as well;
make the requirement for sale of individual properties at trustee auction consistent with existing provisions; and
fix erroneous cross references.

A mock-up of the amendments in context is attached to this analysis.

8. Arguments in support of the bill

According to the author:

Census data indicates that more than 1.1 million California homes are currently vacant. With over 150,000 homeless and many more residents housing insecure, now is not the time for residential properties to be held vacant. During the last financial crisis, large corporations and private investment firms purchased a significant number of foreclosed homes up and down the state and across the country. Many homes were flipped for profit, others were kept vacant, some held and rented at rents above the prevailing neighborhood market. Such practices reduced the number of available homes and amplified California’s affordability crisis. When corporations leave properties vacant, Californians who need housing are prevented from renting or purchasing the homes, pushing the cost of housing in the community higher. SB 1079 limits large corporate owners of single family homes from keeping those homes vacant by giving local governments additional enforcement tools and limiting the bulk sale and purchase of foreclosed properties. Additionally SB 1079 would give owner-occupants, cities and non-profits, the first opportunity to bid on the property.

In support, Western Center on Law & Poverty and the California Rural Legal Assistance Foundation write:

SB 1079 is a simple, straightforward measure to limit the practices which could lead to corporate control over our neighborhoods given the scale of homeowners potentially facing foreclosure.

9. Arguments in opposition to the bill

In opposition to the bill, the National Rental Home Council writes:

SUPPORT

Oakland City Council

TechEquity Collaborative

OPPOSITION

California Apartment Association

California Land Title Association

California Rental Housing Association

Fieldstead & Company

National Rental Home Council

Southern California Rental Housing Association

RELATED LEGISLATION

Pending Legislation:

SB 1447 (Bradford, 2020) extends the foreclosure mitigation protections in the Homeowners Bill of Rights to rental properties consisting of one to four units. The bill also reinstates State Bar authority to investigate and enforce violations of the law prohibiting loan modification assistance from charging fees prior to completing promised work. SB 1447 is currently pending consideration on the Senate Floor.

AB 828 (Ting, 2020) imposes a moratorium on residential foreclosures during any COVID-19 related state of emergency and for 15 days thereafter. AB 828 is currently awaiting referral in the Senate Rules Committee.

Prior Legislation:

AB 354 (Calderon, 2017) would have required an institutional investor, as defined, to register with the Department of Business Oversight and report, among other things, the total number of single-family homes in the state that are owned by the institutional investor, including the number owned in each county, and the number occupied by renters throughout the state, and in each county. In his message vetoing AB 354, Governor Brown wrote: “collecting the data would not stop the purchase of these homes by private investors.”

AB 2282 (Calderon, 2016) would have established a Task Force on Institutional Investors within the Bureau of Real Estate with a mission to gather and report information about the operations of large-scale buy-to-rent investors in the state. AB 2282 died on the Senate Floor.

AB 2314 (Carter, Ch. 201, Stats. 2012) repealed the sunset on Civil Code Section 2929.3, making it effective indefinitely, and clarified that the civil fines collected could be spent on legal abatement proceedings, among other things.

SB 1137 (Perata, Ch. 69, Stats. 2008) enacted Civil Code Section 2929.3, requiring the legal owner of vacant residential property purchased or acquired through foreclosure, to maintain it, and authorizing government entities to impose civil fines of up to $1,000 per day for violations that are not cured after notice.

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Amended Mock-up for 2019-2020 SB-1079 (Skinner (S))

Mock-up based on Version Number 98 - Amended Senate 5/13/20

The people of the State of California do enact as follows:

SECTION 1. Section 2924f of the Civil Code is amended to read:

(a) As used in this section and Sections 2924g and 2924h, “property” means real property or a leasehold estate therein, and “calendar week” means Monday through Saturday, inclusive.

(b)(1) Except as provided in subdivision (c), before any sale of property can be made under the power of sale contained in any deed of trust or mortgage, or any resale resulting from a rescission for a failure of consideration pursuant to subdivision (c) of Section 2924h, notice of the sale thereof shall be given by posting a written notice of the time of sale and of the street address and the specific place at the street address where the sale will be held, and describing the property to be sold, at least 20 days before the date of sale in one public place in the city where the property is to be sold, if the property is to be sold in a city, or, if not, then in one public place in the county seat of the county where the property is to be sold, and publishing a copy once a week for three consecutive calendar weeks.

(2) The first publication to be at least 20 days before the date of sale, in a newspaper of general circulation published in the city in which the property or some part thereof is situated, if any part thereof is situated in a city, if not, then in a newspaper of general circulation published in the public notice district in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or public notice district, as the case may be, in a newspaper of general circulation published in the county in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or public notice district or county, as the case may be, in a newspaper of general circulation published in the county in this state that is contiguous to the county in which the property or some part thereof is situated and has, by comparison with all similarly contiguous counties, the highest population based upon total county population as determined by the most recent federal decennial census published by the Bureau of the Census. For the purposes of this section, publication of notice in a public notice district is governed by Chapter 1.1 (commencing with Section 6080) of Division 7 of Title 1 of the Government Code.

(3) A copy of the notice of sale shall also be posted in a conspicuous place on the property to be sold at least 20 days before the date of sale, where possible and where not restricted for any reason. If the property is a single-family residence the posting shall be on a door of the residence, but, if not possible or restricted, then the notice shall be posted in a conspicuous place on the property; however, if access is denied because a common entrance to the property is restricted by a guard gate or similar impediment, the property may be posted at that guard gate or similar impediment to any development community.

(4) The notice of sale shall conform to the minimum requirements of Section 6043 of the Government Code and be recorded with the county recorder of the county in which the property or some part thereof is situated at least 20 days prior to the date of sale.

(5) The notice of sale shall contain the name, street address in this state, which may reflect an agent of the trustee, and either a toll-free telephone number or telephone number in this state of the trustee, and the name of the original trustor, and also shall contain the statement required by paragraph (3) of subdivision (c). In addition to any other description of the property, the notice shall describe the property by giving its street address, if any, or other common designation, if any, and a county assessor’s parcel number; but if the property has no street address or other common designation, the notice shall contain a legal description of the property, the name and address of the beneficiary at whose request the sale is to be conducted, and a statement that directions may be obtained pursuant to a written request submitted to the beneficiary within 10 days from the first publication of the notice. Directions shall be deemed reasonably sufficient to locate the property if information as to the location of the property is given by reference to the direction and approximate distance from the nearest crossroads, frontage road, or access road. If a legal description or a county assessor’s parcel number and either a street address or another common designation of the property is given, the validity of the notice and the validity of the sale shall not be affected by the fact that the street address, other common designation, name and address of the beneficiary, or the directions obtained therefrom are erroneous or that the street address, other common designation, name and address of the beneficiary, or directions obtained therefrom are omitted.

(6) The term “newspaper of general circulation,” as used in this section, has the same meaning as defined in Article 1 (commencing with Section 6000) of Chapter 1 of Division 7 of Title 1 of the Government Code.

(7) The notice of sale shall contain a statement of the total amount of the unpaid balance of the obligation secured by the property to be sold and reasonably estimated costs, expenses, advances at the time of the initial publication of the notice of sale, and, if republished pursuant to a cancellation of a cash equivalent pursuant to subdivision (d) of Section 2924h, a reference of that fact; provided, that the trustee shall incur no liability for any good faith error in stating the proper amount, including any amount provided in good faith by or on behalf of the beneficiary. An inaccurate statement of this amount shall not affect the validity of any sale to a bona fide purchaser for value, nor shall the failure to post the notice of sale on a door as provided by this subdivision affect the validity of any sale to a bona fide purchaser for value.

(8)(A) On and after April 1, 2012, if the deed of trust or mortgage containing a power of sale is secured by real property containing from one to four single-family residences, the notice of sale shall contain substantially the following language, in addition to the language required pursuant to paragraphs (1) to (7), inclusive:

NOTICE TO POTENTIAL BIDDERS: If you are considering bidding on this property lien, you should understand that there are risks involved in bidding at a trustee auction. You will be bidding on a lien, not on the property itself. Placing the highest bid at a trustee auction does not automatically entitle you to free and clear ownership of the property. You should also be aware that the lien being auctioned off may be a junior lien. If you are the highest bidder at the auction, you are or may be responsible for paying off all liens senior to the lien being auctioned off, before you can receive clear title to the property. You are encouraged to investigate the existence, priority, and size of outstanding liens that may exist on this property by contacting the county recorder’s office or a title insurance company, either of which may charge you a fee for this information. If you consult either of these resources, you should be aware that the same lender may hold more than one mortgage or deed of trust on the property.

NOTICE TO PROPERTY OWNER: The sale date shown on this notice of sale may be postponed one or more times by the mortgagee, beneficiary, trustee, or a court, pursuant to Section 2924g of the California Civil Code. The law requires that information about trustee sale postponements be made available to you and to the public, as a courtesy to those not present at the sale. If you wish to learn whether your sale date has been postponed, and, if applicable, the rescheduled time and date for the sale of this property, you may call [telephone number for information regarding the trustee’s sale] or visit this Internet Web site [Internet Web site address for information regarding the sale of this property], using the file number assigned to this case [case file number]. Information about postponements that are very short in duration or that occur close in time to the scheduled sale may not immediately be reflected in the telephone information or on the Internet Web site. The best way to verify postponement information is to attend the scheduled sale.

(B) A mortgagee, beneficiary, trustee, or authorized agent shall make a good faith effort to provide up-to-date information regarding sale dates and postponements to persons who wish this information. This information shall be made available free of charge. It may be made available via an Internet Web site, a telephone recording that is accessible 24 hours a day, seven days a week, or through any other means that allows 24 hours a day, seven days a week, no-cost access to updated information. A disruption of any of these methods of providing sale date and postponement information to allow for reasonable maintenance or due to a service outage shall not be deemed to be a violation of the good faith standard.

(C) Except as provided in subparagraph (B), nothing in the wording of the notices required by subparagraph (A) is intended to modify or create any substantive rights or obligations for any person providing, or specified in, either of the required notices. Failure to comply with subparagraph (A) or (B) shall not invalidate any sale that would otherwise be valid under Section 2924f.

(D) Information provided pursuant to subparagraph (A) does not constitute the public declaration required by subdivision (d) of Section 2924g.

(9) If the sale of the property is to be a unified sale as provided in subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, the notice of sale shall also contain a description of the personal property or fixtures to be sold. In the case where it is contemplated that all of the personal property or fixtures are to be sold, the description in the notice of the personal property or fixtures shall be sufficient if it is the same as the description of the personal property or fixtures contained in the agreement creating the security interest in or encumbrance on the personal property or fixtures or the filed financing statement relating to the personal property or fixtures. In all other cases, the description in the notice shall be sufficient if it would be a sufficient description of the personal property or fixtures under Section 9108 of the Commercial Code. Inclusion of a reference to or a description of personal property or fixtures in a notice of sale hereunder shall not constitute an election by the secured party to conduct a unified sale pursuant to subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, shall not obligate the secured party to conduct a unified sale pursuant to subparagraph (B) of paragraph (1) of subdivision (a) of Section 9604 of the Commercial Code, and in no way shall render defective or noncomplying either that notice or a sale pursuant to that notice by reason of the fact that the sale includes none or less than all of the personal property or fixtures referred to or described in the notice. This paragraph shall not otherwise affect the obligations or duties of a secured party under the Commercial Code.

(c)(1) This subdivision applies only to deeds of trust or mortgages which contain a power of sale and which are secured by real property containing a single-family, owner-occupied residence, where the obligation secured by the deed of trust or mortgage is contained in a contract for goods or services subject to the provisions of the Unruh Act (Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of Division 3).

(2) Except as otherwise expressly set forth in this subdivision, all other provisions of law relating to the exercise of a power of sale shall govern the exercise of a power of sale contained in a deed of trust or mortgage described in paragraph (1).

(3) If any default of the obligation secured by a deed of trust or mortgage described in paragraph (1) has not been cured within 30 days after the recordation of the notice of default, the trustee or mortgagee shall mail to the trustor or mortgagor, at his or her last known address, a copy of the following statement:

YOU ARE IN DEFAULT UNDER A

(Deed of trust or mortgage)

DATED . UNLESS YOU TAKE ACTION TO PROTECT YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC SALE. IF YOU NEED AN EXPLANATION OF THE NATURE OF THE PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A LAWYER.

(4) All sales of real property pursuant to a power of sale contained in any deed of trust or mortgage described in paragraph (1) shall be held in the county where the residence is located and shall be made to the person making the highest offer. During the 20-day period prior to the date of sale, the trustee shall receive offers from individuals who will be owner-occupants of the home and from a public entity that is utilizing public funds to purchase the property. Any offer from a prospective owner-occupant shall be accompanied by an owner-occupant certification. The trustee may receive offers during the 10-day period immediately prior to the date of sale and if any offer is accepted in writing by both the trustor or mortgagor and the beneficiary or mortgagee prior to the time set for sale, the sale shall be postponed to a date certain and prior to which the property may be conveyed by the trustor to the person making the offer according to its terms. The offer is revocable until accepted. The performance of the offer, following acceptance, according to its terms, by a conveyance of the property to the offeror, shall operate to terminate any further proceeding under the notice of sale and it shall be deemed revoked.

For the purposes of this paragraph, the following definitions shall apply:

“Owner-occupants” means buyers who will occupy the property as their principal residence within 60 days of closing and will maintain their occupancy for at least one year.

“Public entity” means the state, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state, including, but not limited to, a community land trust or a nonprofit entity providing affordable housing.

(5) In addition to the trustee fee pursuant to Section 2924c, the trustee or mortgagee pursuant to a deed of trust or mortgage subject to this subdivision shall be entitled to charge an additional fee of fifty dollars ($50).

(6) This subdivision applies only to property on which notices of default were filed on or after the effective date of this subdivision.

(d) With respect to residential real property containing no more than four dwelling units, a separate document containing a summary of the notice of sale information in English and the languages described in Section 1632 shall be attached to the notice of sale provided to the mortgagor or trustor pursuant to Section 2923.3.

SEC. 2. Section 2924g of the Civil Code is amended to read:

2924g. (a) (1) All sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday.

(2) The sale shall commence at the time and location specified in the notice of sale. Any postponement shall be announced at the time and location specified in the notice of sale for commencement of the sale or pursuant to paragraph (1) of subdivision (c).

(3) If the sale of more than one parcel of real property has been scheduled for the same time and location by the same trustee, (A) any postponement of any of the sales shall be announced at the time published in the notice of sale, (B) the first sale shall commence at the time published in the notice of sale or immediately after the announcement of any postponement, and (C) each subsequent sale shall take place as soon as possible after the preceding sale has been completed.

(4) Notwithstanding any other law, a sale of property under the power of sale contained in any deed of trust or mortgage shall be subject to the follow restrictions:

(A) No person shall be permitted to purchase more than three properties in the same county on the same date pursuant to procedures described in this section. For purposes of this paragraph, person is defined as the entity in whose name title to the property is recorded.

(B) A trustee shall not bundle properties for the purpose of sale. Each property shall be bid on separately, unless the deed of trust or mortgage provides otherwise.

(b) When the property consists of several known lots or parcels, they shall be sold separately unless the deed of trust or mortgage provides otherwise. When a portion of the property is claimed by a third person, who requires it to be sold separately, the portion subject to the claim may be thus sold. The trustor, if present at the sale, may also, unless the deed of trust or mortgage otherwise provides, direct the order in which property shall be sold, when the property consists of several known lots or parcels which may be sold to advantage separately, and the trustee shall follow that direction. After sufficient property has been sold to satisfy the indebtedness, no more can be sold.

If the property under power of sale is in two or more counties, the public auction sale of all of the property under the power of sale may take place in any one of the counties where the property or a portion thereof is located.

(c) (1) There may be a postponement or postponements of the sale proceedings, including a postponement upon instruction by the beneficiary to the trustee that the sale proceedings be postponed, at any time prior to the completion of the sale for any period of time not to exceed a total of 365 days from the date set forth in the notice of sale. The trustee shall postpone the sale in accordance with any of the following:

(A) Upon the order of any court of competent jurisdiction.

(B) If stayed by operation of law.

(C) By mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee.

(D) At the discretion of the trustee.

(2) In the event that the sale proceedings are postponed for a period or periods totaling more than 365 days, the scheduling of any further sale proceedings shall be preceded by giving a new notice of sale in the manner prescribed in Section 2924f. New fees incurred for the new notice of sale shall not exceed the amounts specified in Sections 2924c and 2924d, and shall not exceed reasonable costs that are necessary to comply with this paragraph.

(d) The notice of each postponement and the reason therefor shall be given by public declaration by the trustee at the time and place last appointed for sale. A public declaration of postponement shall also set forth the new date, time, and place of sale and the place of sale shall be the same place as originally fixed by the trustee for the sale. No other notice of postponement need be given. However, the sale shall be conducted no sooner than on the seventh day after the earlier of (1) dismissal of the action or (2) expiration or termination of the injunction, restraining order, or stay that required postponement of the sale, whether by entry of an order by a court of competent jurisdiction, operation of law, or otherwise, unless the injunction, restraining order, or subsequent order expressly directs the conduct of the sale within that seven-day period. For purposes of this subdivision, the seven-day period shall not include the day on which the action is dismissed, or the day on which the injunction, restraining order, or stay expires or is terminated. If the sale had been scheduled to occur, but this subdivision precludes its conduct during that seven-day period, a new notice of postponement shall be given if the sale had been scheduled to occur during that seven-day period. The trustee shall maintain records of each postponement and the reason therefor.

(e) Notwithstanding the time periods established under subdivision (d), if postponement of a sale is based on a stay imposed by Title 11 of the United States Code (bankruptcy), the sale shall be conducted no sooner than the expiration of the stay imposed by that title and the seven-day provision of subdivision (d) shall not apply.

SEC. 3. Section 2929.3 of the Civil Code is amended to read:

2929.3. (a) (1) A legal owner shall maintain vacant residential property purchased by that owner at a foreclosure sale, or acquired by that owner through foreclosure under a mortgage or deed of trust. A governmental entity may impose a civil fine of up to ten thousand dollars ($10,000) per day for a violation. If the governmental entity chooses to impose a fine pursuant to this section, it shall give notice of the alleged violation, including a description of the conditions that gave rise to the allegation, and notice of the entity’s intent to assess a civil fine if action to correct the violation is not commenced within a period of not less than 14 days and completed within a period of not less than 30 days. The notice shall be mailed to the address provided in the deed or other instrument as specified in subdivision (a) of Section 27321.5 of the Government Code, or, if none, to the return address provided on the deed or other instrument.

(2) The governmental entity shall provide a period of not less than 30 days for the legal owner to remedy the violation prior to imposing a civil fine and shall allow for a hearing and opportunity to contest any fine imposed. In determining the amount of the fine, the governmental entity shall take into consideration any timely and good faith efforts by the legal owner to remedy the violation. The maximum civil fine authorized by this section is ten thousand dollars ($10,000) for each day that the owner fails to maintain the property, commencing on the day following the expiration of the period to remedy the violation established by the governmental entity.

(3) Subject to the provisions of this section, a governmental entity may establish different compliance periods for different conditions on the same property in the notice of alleged violation mailed to the legal owner.

(b) For purposes of this section, “failure to maintain” means failure to care for the exterior of the property, including, but not limited to, permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action to prevent trespassers or squatters from remaining on the property, or failing to take action to prevent mosquito larvae from growing in standing water or other conditions that create a public nuisance.

(c) Notwithstanding subdivisions (a) and (b), a governmental entity may provide less than 30 days’ notice to remedy a condition before imposing a civil fine if the entity determines that a specific condition of the property threatens public health or safety and provided that notice of that determination and time for compliance is given.

(d) Fines and penalties collected pursuant to this section shall be directed to local nuisance abatement programs, including, but not limited to, legal abatement proceedings.

(e) A governmental entity may not impose fines on a legal owner under both this section and a local ordinance.

(f) These provisions shall not preempt any local ordinance.

(g) This section shall only apply to residential real property.

(h) The rights and remedies provided in this section are cumulative and in addition to any other rights and remedies provided by law.

SEC. 4. Section 726.7 is added to the Code of Civil Procedure, to read:

726.7. (a) If in any action to recover a debt or enforce a right secured by mortgage upon a residential real property pursuant to this chapter the court directs the sale of the encumbered property pursuant to Section 726, the mortgagee shall, before offering the residential real property for sale on the open market in accordance with this chapter, first offer that property exclusively to individuals who will be owner-occupants of the home, or to a public entity that is utilizing public funds to purchase the property, for the first 20 days the property is listed on the market. After the first 20 days that the property is listed, any person may submit an offer to purchase the property and these offers shall be considered along with the offers submitted during the first 20-day listing period. An owner-occupant purchaser shall be required to sign an owner-occupant certification as a rider to the residential real estate purchase and sale contract.

(b) For the purpose of this section:

(1) “Owner-occupants” means buyers who will occupy the property as their principal residence within 60 days of closing and will maintain their occupancy for at least one year.

(2) “Public entity” means the state, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state, including, but not limited to, a community land trust or a nonprofit entity providing affordable housing.

SEC. 5. Section 50415 is added to the Health and Safety Code, to read:

50415. (a) Not withstanding any law, the department shall establish a process whereby a city, county, community land trust, or housing sponsor may register with the department in order to receive notification of a foreclosure sale of residential real property that is subject to Section 726.7 of the Code of Civil Procedure or notification pursuant to Section 1954.63 of the Civil Code.

(b) Upon receipt of a notice received pursuant to paragraph (2) of subdivision (c) of Section 726.7 of the Code of Civil Procedure or paragraph (1) of subdivision (b) of Section 1954.63 of the Civil Code, the department shall notify each entity that has registered with it pursuant to this section of that notice.

(c) Upon request, the department shall provide a list of each entity that has registered with it pursuant to this section.

(d) For purposes of this section:

(1) “Community land trust” means a nonprofit corporation organized pursuant to Section 501(c)(3) of the Internal Revenue Code that satisfies all of the following:

(A) Has as its primary purposes the creation and maintenance of permanently affordable single-family or multifamily residences.

(B) All dwellings and units located on the land owned by the nonprofit corporation are sold to a qualified owner to be occupied as the qualified owner’s primary residence or rented to persons and families of low or moderate income, as that term is defined in Section 50093 of the Health and Safety Code.

(C) The land owned by the nonprofit corporation, on which a dwelling or unit sold to a qualified owner is situated, is leased by the nonprofit corporation to the qualified owner for the convenient occupation and use of that dwelling or unit for a renewable term of 99 years.

(2) “Mortgagee” means any entity that has issued a loan that is secured by a mortgage on residential real property.

(3) “Residential real property” means any real property located in this state that contains at least one residential dwelling unit.

Johnson and Cuellar Mejia, The Decline of the Homeowner (Aug. 19, 2014) Public Policy Institute of California https://www.ppic.org/blog/the-decline-of-the-homeowner/ (as of May 19, 2020). ↑
Levin, Data Dig: Big Investment Firms Have Stopped Gobbling Up California Homes (Apr. 4, 2018) CalMatters https://calmatters.org/housing/2018/04/data-dig-big-investment-firms-have-stopped-gobbling-up-california-homes/ (as of May 19, 2020). ↑
Whitaker, Foreclosure-Related Vacancy Rates (Jul. 26, 2011) Federal Reserve Bank of Cleveland https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2011-economic-commentaries/ec-201112-foreclosure-related-vacancy-rates.aspx (as of May 19, 2020). ↑
Cowan and Dougherty, Homeless Mothers Are Removed From an Oakland House (Jan. 15, 2020) New York Times https://www.nytimes.com/2020/01/15/us/oakland-homeless-eviction.html (as of May 19, 2020). ↑
Streitfeld, Blight Moves In After Foreclosures, Los Angeles Times http://www.latimes.com/la-fi-vacant28aug28-story.html (as of May 19, 2020). ↑
Find a Home During First Look, Fannie Mae https://www.homepath.com/firstlook-program.html (as of May 19, 2020). ↑


Version: May 29, 2020	Policy Vote: JUD. 7 - 1
Urgency: No	Mandate: No
Hearing Date: June 18, 2020	Consultant: Shaun Naidu

SB 1079: Residential property: foreclosure.

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