AB-1837: Overhauling SB-1079 Foreclosures in 2023 to Address Fraudulent “Eligible Bidders”

Jacoby Perez:

All right, everybody. Welcome to our third episode in the saga that is SB 1079. a couple of housekeeping matters before we get started here. there'll be a Q and A box in which you can submit your questions. Uh, do not submit them into the chat, otherwise I won't see them. We'll allow, you know, I'm aiming to allow 10 minutes or so to answer any questions you guys might have at the end. Uh, if any of your questions are, are maybe a little bit longer or maybe take a little bit more time to address, you can also email me at Jacoby Perez j.Perez@geracillp.com. There's my contact information on the initial slide. we'll be sending these slides out as well after the webinar concludes along with the recording, the contact information will be there as well.

I'm Jacoby Perez, litigation attorney with Geraci Law Firm. Today we're going to be talking about SB 1837, which is we're now in the third year of dealing with SB 1079. We did an initial webinar,  at this point a couple years back kind of looking at what SB 1079 stood to change in the landscape of non-judicial foreclosures. And as I would say, we rightly flagged very early on, there were a couple o of pretty big potential litigation pitfalls, particularly surrounding some of the vagueness in the way the concepts were defined around, you know, who was an, who's an elig eligible bidder who's not. and also surrounding whether the statute really had any teeth to enforce some of the definitions that or enforce some of the requirements that, that it was seeking to impose. So we're now, then we looked at in a second webinar some of the changes and ha i, I would say maybe halfway measures that the legislature shot to put in place for the second year.

Um, and essentially there, there're just, although there were a lot of problems that, that both, you know, we as litigators and people that are in the space saw popping up around SB 1079. There was just a lot of uncertainty about, you know, with such a new law, how these things were gonna work their way through the courts. what, how we were gonna get determinative rulings on some of these litigation issues. And the legislature kind of took a halfway approach after the first year addressing only what I would consider minor, somewhat procedural issues, that were kind of glaring problems and holding off on getting at some of the bigger issues that, that were kind of staring us in the background. So in this third webinar, as we're going to see for the year of 2023, this legislature has implemented a substantial overhaul to the SB 1079 process, particularly surrounding how it's going to define what an eligible bidder is, and with respect to entity bidders, what an entity bidder can do with an SB 1079 property once it acquires it.

So, you know, the, the major topics that we're gonna touch on today, particularly with respect to the new law, you know, we will briefly run over, run through what SB 1079 is and some of the, the fundamental requirements that, that had brought, the fundamental changes that it brought to the foreclosure process to kind of just lay a quick framework so we can compare it to what a 1837 does and how it changed that initial framework that was put in place. and, and, you know, even just looking at what SB 1079 did initially, it's important to note that, you know, one thing a 1837 does is it extends SB 1079 into, 2031 at this point from 2026. So the, the main things that a 1837 does to bring change to the current scheme that we have the first, as, as I kind of touched upon, is clarifying some of what these entity eligible bidders mean.

Um, and, and it, it does it kind of twofold, you know, one is on the definition end where it, it seeks to tie the entities more closely to, more closely to California and also to the affordable housing type space. and then we'll look at the second way that they try and do that, which is, is, I mean, I would consider even maybe a Jurassic measure, which is the AB 1837 implements a 30 year affordability covenant on properties acquired by certain entity eligible bidders at these foreclosure sales which restricts the property to either be sold at affordable housing prices or rented at affordable housing prices for the, that 30 year period as defined under the health and safety code. A kind of third secondary measure, the a P 1837 introduces. we talked about how the big problems early on was a, the defining the categories of bidders, but b, was whether the statute actually had any teeth.

And we see now the legislature trying to get at that here by actually creating an explicit enforcement mechanism through the Attorney General, by which the Attorney General can actually prosecute cases SB 1079 cases on its own. Now that, that's interesting for a couple of reasons that that will touch on, you know, whether it's explicitly the attorney general going after these, or, you know, in a lot of my SB 1079 cases, an unfair business practice 17 200 claim gets raised a lot under which, there is an attorney's fees provision for if you step into the shoes of the Attorney General to prosecute a, an action seeking to, to prevent, an unfair competition to enjoin unfair competition that's out there. So it's interesting that we see the legislature trying to add more teeth to the SB 1079 process. And lastly, we'll, we'll just briefly take a look at what I thought is, and it's not explicitly SB 1079, but it still, the legislature trying to get at this issue.

And at this point, kind of from the other end of the spectrum, AB 2170 actually requires these, institutional foreclosure entities that foreclose on over 170 prop five properties a year to provide a 30 day window for any R e O listings in which only offers by certain eligible bidders may be accepted. So, on the other side of the foreclosure sale, when these particular type of entities require an IT or acquiring it B 1079 property, there's a 30 day window in which they can only offer it to eligible bidders to, to give them preference kind of on the other end. So that said, you know, quickly, here's a slide of the agenda. We don't need to go back through it. I <laugh>, I I just ran through it all there, there for you. So what is SB 1079? For those that don't know I would expect most would that are tuning into the webinar at this point, have heard, at least heard about some of the problems that are surrounding the statute that we've been grappling with.

SB 1079 went into effect January 1st, 2021, and the idea was legislature was concerned that we were gonna have a wave of foreclosure similar to the Great Recession, in which we were gonna see transfers of properties, once the covid restrictions were lifted, transfers of properties from individual ownership to institutional investor type ownership. So the idea was, okay, let's modify our non-judicial foreclosure process to provide certain advantages to the types of individuals and even maybe entities that we would prefer acquire these properties. So, you know, at least give them a level playing field over these institutional guys, and hopefully kind of get out ahead of an anticipated problem of seeing properties continue to be consolidated in the hands of institutional investors over individual ownership. So how does SB 1079 seek to accomplish that, that that ideal of what we would call promoting owner occupancy? Well, for one, it's limited to residential properties in which that can be owner occupied. It's limited specifically to properties that contain one to four residential units. Uh, another important limitation SB 1079 brought was a limitation on sellers bundling the homes together during the foreclosure sale. Because again, you know, an individual bid is not gonna be bidding on bundled homes. He, he's seeking to move into a single foreclosed property. So you had that prohibition on the bundling. And then finally, which is kind of the real meat of it, and where we saw the, the major changes, but also the major problems was this 45 day window that potentially kicks into gear after you have a trustee sale.

So prior, when you would have a non-judicial foreclosure trustee sale, that would be it, you would have the bidders at the sale, and the highest bid property goes to the highest bidder. Now, SB 1079 introduces introduce two new potential situations. One is, which if you have a eligible bidder as defined under SB 1079 at the trustee sale, then that's it, it, it, the sale occurs a as it would regularly, and it goes to a prospective owner occupant or eligible tenant buyer. There is no 45 day window. However, if there's not a prospective owner occupant or eligible tenant buyer at the highest bidder at the trustee sale, then you have this new 45 day window that's implemented in which other categories of eligible bidders can submit a bid, and potentially become the owners of the property. So, you know, we'll, we'll take a look, we'll take a quick look at how that process works, but it's essentially, they have to submit an affidavit within 15 days, perfect.

Their bid within 45, including tendering the funds and the highest eligible bidder at that point, generally is the one that that takes the property. So what are the categories of eligible bidders? the first category, and, you know, it'll be important to keep this definition in mind, when we looked at some of the new changes a 1837 brings, but the initial category that you have, it's not the most usual one, but an eligible tenant buyer, and that's, that's someone who already lives on the property, wants to buy the property, so they occupy it as a primary residence at the time of the sale. They have an arms length lease agreement. and, you know, they're not, they're not the borrower's family member, which again, speaks to that sort of arms length issues. Now, they're not the most common problem or, or not the most typical issue litigation issue that we've seen.

However, I've definitely seen cases where you had certain questionable individuals claiming to be eligible tenant buyers, trying to meet these requirements because an eligible tenant buyer has certain advantages over some of the, all of the other entity type bidders in that eligible tenant buyer, as we kind of touched on a, a few minutes ago, if they're the highest bidder at the trustee sale, there is no 45 day window. Even if you are an eligible bidder type entity, and you're the highest bidder at the trustee sale, you're still subject to that 45 day window. So there's a major incentive to be an eligible tenant buyer, or we'll as we'll see a perspective owner occupant. and when we take a look at AB 1837, we'll see some of the stricter requirements that the legislature put in place on these eligible tenant buyers. Prospective owner occupant is sort of your typical, scenario rather than someone that's already living on the property.

It's a prospective home owner who wants to acquire the property. and, and the requirement is that he's gonna occupy it as his primary residence when within 60 days after the trustees deed is recorded, gonna live on the property for at least a year. Uh, again, th there's an arm's length situation and that he's not the borrower or the borrower's family member, and he's not acting as the agent. Uh, essentially he's not the straw man for any other person or entity that that's buying the property. He's a bonafide perspective owner occupant. and you know, the way I look at is this is kind of the legislature's ideal situation, you know, short of an eligible tenant buyer where we're making sure that homeowners are requiring the homes rather than they end up going to investors who may or may not decide to use it for affordable housing or, you know, the purposes that the legislature envisioned.

And so then we'll briefly take a look at the categories, the additional categories of eligible bidders under the prior law. A as I mentioned at the outset of here, AB 1837 tweaks, especially the, the type of nonprofit corporations that can qualify, tweaks the definition significantly and imposes a few new important requirements on them. but we'll take a look at the general language here just to illustrate how vague it, how, how vague it initially was. And you, you can really see as you parse and ask, okay, well what does that mean? What does this mean? Why AB 1837? And really that need or that reaction, or maybe even overreaction of imposing this 30 year affordability covenant, became a necessity. So these entity type bidders, you know, the kind of first one is a nonprofit in which an eligible tenant buyer or prospective owner occupant is a voting member or director.

So in that case, I mean, you still have an eligible tenant buyer or a prospective owner occupant involved. it, the situation's not as ideal as having one of them move onto the property cuz they just have to be a voting member or director. they're still restricted though by those definitions. So this one was kind of a, a just a strange category of, I mean, I, I guess if you're for tax purposes or something, perspective owner occupant wanted to use it. We'll see, AB 1837 kind of does away with this category as well. the next one, the first wa the first area that's kind of problematic was ineligible California non-profit corporation whose primary activity is development and preservation of affordable rental housing. So what does it mean for your primary activity to be the development and preservation of affordable housing? How long ha did you have to have any transactions at all within this field?

How long would you have to have been in this field? What filings were required with the California Secretary of State to establish you as one of these corporations? I mean, the language says eligible California Nonprofit Corporation. What exactly does that mean? then you had another category related to this one, which is even more removed, one step removed in which a limited partnership or limited liability company in which the managing general partner or managing member is that California nonprofit that we just identified in the prior category. So now we're getting even further away from California getting even further away from whatever that definition means of having to have your primary activity in the development and preservation of affordable housing. So you can see with these nebulous categories how they, they could be problematic if you're trying to enforce them in the context of litigation.

Um, the, the huge thing that SB 1079 does is that it does provide advantages if you are an entity, and you are maybe an unscrupulous investor. There's, there's definitely advantages that these entities have over just regular investor. Regular investors are only able to, to bid on these properties at the foreclosure sale, at the trustee sale. So rather than having to engage in a competitive bidding process, you can simply, assuming you meet the category of algebra bidder, eligible bidder or, or at least are willing to claim that you do, you can wait till that trustee sale plays out and, and just overbid that bidding process at the trustees sale and be determined the prevailing bidder, which, you know, on, on top of that too, you don't actually have to have your money tied up in that trustees sale. You can choose the tender to the funds at the end of that 45 day process.

Another advantage that these eligible bidder type entities would have, there's a couple of other categories, that that were, that were defined in the code that they don't come up as often or aren't as significant for AB 1837 analysis. So, you know, we'll send out the slides, you'll be able to take a look at 'em, later on. What is eligible bid? and this is, you know, briefly just getting at the process that that has to be followed in order to, for the eligible bidder to be considered. If there was no highest p o o or eligible tenant bidder at the trustee sale, then if within 15 days an eligible bidder submits a written notice of intent to place a bid, then this 45 day window I is into effect as assuming that that written notice, I is legitimate. And as became the law, na last year has to be accompanied by an affidavit, sworn under penalty of perjury law says Trustee may reasonably rely on this affidavit.

And last year they also kind of clarified, you know, the timeline that the specific timing of when the trustee must receive the bid must receive the affidavit and also when they must receive the bid, which is, you know, the, the amount which is 5:00 PM on the 45 day after the trustee sale. So, there, there, there, there's a couple of, special provisions you could say that apply to prospective owner occupants. We, we kind of touched on them already. you, you'll, you'll have this slide as well, but the big one is if you're an eligible lieutenant buyer eligible bidder and you're the highest bidder at the trustee sale, there is no 45 day window. you know, the other one that that doesn't really come up as much just because eligible tenant buyers aren't as common, but multiple ones is even less common. But they can actually submit a bid, equal to the amount of the last and highest bid of the trustee sale. And, they, they don't actually have to exceed the, the highest bid of the sale. But also, if the eligible tenant buyers of all of them actually agree, they can submit a bid on behalf of all of them, that immediately becomes the winning bid within the 45 day window. And the 45 day window does not have to actually go to completion. The eligible tenant buyers who submit a bid on behalf of all of them are, would be granted the property assuming they matched the highest bid at the trustee sale.

So, getting to what AB 1837 brings to the table, the changes that it brings to the categories of bidders, the first thing that we kind of mentioned is this SB 1079 process has, has been extended, it's been extended from January of 2026 and now is anticipated to run through January, 2031 as the current law stands. So ostensibly, the legislature sees quite a lot that they like about what SB 1079 has been doing, but for some of the dramatic changes that we we'll see implemented and, you know, we'll be talking about going forward. so some of those, those changes that are gonna remain in place are specific notice requirements that we, we haven't really touched on for litigation purposes, but there, there are very specific notice requirements, that are iterated, you know, down to the t in the code that have to be followed in order to conduct a sale, under SB 1079.

The interesting part about that is a little bit of a aside is, you know, our non-judicial foreclosure process, the idea is that, okay, on one hand we want to allow an efficient economic remedy for foreclosure in the event that there are defaults. But the way that we're gonna make sure that it's a fair process is that it's gonna be highly regulated on the ends of the requirements that we impose. And so we had this, you know, body of law that was very particular about the the requirements that, that were gonna be implemented. Now, SB 1079 comes in and introduces this window of this 45 day window, and I would say a window of uncertainty where what some of these property rights mean, might, might, might come into question. It, it's something that certainly comes up a lot in just even at, just at the pleading stages of some of the litigation, you know, that I've been dealing with.

Uh, I is there a property, right, created by the bidder who's bidding at the trustee sale particularly when now under SB 1079, he tenders the fund at the trustee sale and you have an eligible bidder that comes in after the fact, and now that bid at the edge investor bid, the trustee sale has his money tied up for the duration of that 45 day window. it would seem to me that there's at least some sort of quasi property right created there. There's definitely a detriment being incurred by that investor. and, you know, assuming certain conditions are met, he's these obligated to, to, to those funds are, are, are, he's going to be deprived of those funds and he's going to acquire the property. So it, it introduces this new element of uncertainty regarding how we look at some of the, the causes of action that might be brought in relation to SB 1079, whether, you know, we're talking about a general quiet title, you know, potentially with these fraudulent bidders an intentional interference with prospective economic advantage, whether there's a breach of contract or, or even a promissory estoppel issue.

Uh, there's a lot of questions for judges still to decide surrounding the exact nature of these property rights and how this s p 1079 window, really should fit within the types of claims that, that we have, you know, currently available to us under the case law.

So with that said, start looking at some of the changes that AB 1837 brings an eligible tenant buyer, as we talked about, someone who occupies the property as their primary residence. Now what we see AB 1837 do is impose some stricter evidentiary requirements and an interesting bankruptcy requirement as well. So, I, if you look at the specific language, an eligible tenant buyer must be occupying the real property under a renter lease agreement entered into as a result of an arms length transaction with the mortgage or a trust store, or with a mortgage or a trust's predecessor in interest on a date prior to the recording of the notice of default against the property and who attaches evidence demonstrating the existence of the tenancy to the affidavit or declaration required pursuant to this subparagraph. And we'll take a look at what that definition is.

That was not a requirement before for an eligible tenant buyer. So, you know, th this isn't the biggest change that AB 1837 bring, but if you are an eligible tenant buyer, and you know, the ones that, that I've spoken to that I've advised to up today, you know, I I suggested that they do this anyway, that they attach a copy of the lease agreement to their bid. a as we recall, the law allows the trustee to rely on the affidavit anyways, whoever you know, whether in the past it was better saved than sorry. Now it's very explicit that you have to attach evidence demonstrating the existence of the tenancy. So what is that evidence? If you take a look at this bullet 0.5 we have here evidence demonstrating the existence of the tenancy means a copy of the dated and signed rental or lease agreement, or if a copy of the dated and signed rental or lease agreement is not available, then either a evidence of rent payments made for the property by the person asserting that they're ineligible buyer for the six months prior to the recording of the notice of default or copies of the utility bill or the property payable by the person asserting that they are an eligible tenant buyer for the six months prior to the recording of the notice of default.

So again, you, we see the legislature trying to tamp down on how we can actually enforce these previously more nebulous categories of what's ineligible tenant buyer, what's ineligible bidder, imposing stricter requirements that are verifiable. whether that ends up having to be, you know, by the attorney general or it ends up having to be by the judges in litigation. And I, I touched on this briefly, but there's also this new requirement that ineligible tenant buyer could not have, cannot be someone that filed a bankruptcy, from the date of the trustee sale through that 45 day window. you know, if they file a bankruptcy before ostensibly, it stays the foreclosure process anyways. so, you know, th this new requirement I guess it requires them just to pick or choose what are they gonna do? Are they gonna file bankruptcy or, you know, challenge the foreclosure in in some other way, including, you know, trying to be an eligible tenant buyer. But you can't have it both ways. You can't file bankruptcy and also claim I'm gonna be ineligible tenant buyer.

And so now we're gonna take a look at the significant changes that AB 1837 brings to the definition of the eligible nonprofit. As we saw, you know, we'll take prior slide, a quick look, a nonprofit in which an eligible chain of buyer perspective owner is a voting member director, an eligible California nonprofit corporation whose primary activity is development and preservation of affordable housing. That's the extent of the definition that we're talking about here under the prior SB 1079, or a limited partnership or limited liability company in which you have one of those California nonprofits. So let's take a look at what the new code says. The new code says an eligible nonprofit should have the following attributes. one, now we see a definition ostensibly of what eligible means. there has to be some existing paper trail to evidence that this nonprofit is what it says it was.

And here that's a determination letter from the I r s affirming the tax exempt stat exempt status of the nonprofit pursuant to 5 0 1 [inaudible] [inaudible] of the Internal Revenue Code. and that it's not a private foundation as that term is defined in section 5 0 9. So that's interesting because now you have a requirement that the i r s actually determine that you are that determined the, the category of not non-profit that you're trying to seek under. You can't just say, oh, you know, I filed a statement of information with California. I'm a nonprofit for purposes of this section. my bid needs to be considered over all the o those other investors who, you know, don't do affordable housing. I, I definitely do it. I set it in my papers. a second requirement. We see it. The nonprofit has to have its principle place of business in California.

Um, the primary residents of all board members must be located in California. And so, so those two are significant changes from what we've seen in the past. Now, in this fourth one is kind of interesting when you think about it, it isn't a dramatic change from the language. And even though the language is wasn't great under the prior definition, you'll see why there wasn't a need for a dramatic change here. When it says one of its primary activities is development and preservation of affordable rental or home ownership housing in California. Now it's still not perfectly clear what exactly that means. This actually ostensibly expands the, the relevant categories of nonprofits cuz it just says one of its primary activities, where the last one said it's primary activity, the last law said primary activity was in the development and preservation of affordable housing.

However, as we're gonna talk about shortly hereafter, this is coupled with if you are one of these entities, meeting these definitions, acquiring the property at the foreclosure, there is a substantial restriction on your use of that property. And that's where we talk about that affordability covenant. So while this ostensibly says, you know, maybe this is an expansion and oh, it only, only one of your primary activities has to be the development and preservation of affordable housing meaning more entities might be able to, to, to qualify under this, this requirement. When you look at the, the use restriction, there is a heavy disincentive for any of these potentially fraudulent bidders to want to try and qualify under, under these categories. you know, up until seen AB 1837, that is a huge issue that we've seen coming up is with these definitions of, you know, what is a qualifying nonprofit?

What does it mean to be in affordable housing? Uh, there's all these incentives for them to try and shoehorn themselves into one of the entity categories and be able to swoop in and take the property after the foreclosure sale. But now when we look at this affordability covenant that gets tacked on, there's really no reason there, there's no incentive for them to do it because they're gonna be restricted to using that property for affordable housing for, you know, ostensibly 30 years. and then we see another change to the type of entity bidder. We, we talked about what the nonprofit was as far as the changes to the limited liability company that says a limited liability company wholly owned by one or more eligible nonprofit corporations as described in subparagraph C or D. So this is a significant change too. Again, when we look back at what we had before, we had a limited partnership, which we don't see anything mentioned about a limited partnership anymore, but also a limited liability company in which all that was required was the managing general partner or managing member must have been one of these eligible California nonprofits.

When we look at what the new law says, it's not just the managing member. It has to be wholly owned by an eligible nonprofit corporation and not ineligible nonprofit as defined under that old law. With those, you know, more broad definitions, ineligible nonprofit that meets this i r s determination principle place of business in California, all board members have primary residences in California and is registered in good standing with the Attorney General's Registry of Charitable Trust.

So as we mentioned, we had the big, the big changes brought to the definitions of eligible bidders. here's kind of the most substantive change that AB 13 seven introduces into the playing field. you know, obviously there's a lot of text here, apologies, there's a lot of texts here. but the key here is that for one of these eligible bidders, which this refers to these types of entity bidders that we've been talking about, acquired one of these properties at this type of foreclosure sale, non-judicial foreclosure sale subject death B 1079. The property shall be subject to a recorded covenant that ensures that the property shall be sold at an affordable housing cost, which is defined under the health and safety code, or rented at an affordable rent. Again, specific definition, no longer dealing with these uncertain nebulous definitions. Specific definition for lower income households for 30 years from the date the trustees deed is issued, or a greater period of time potentially if some of these other exceptions apply.

Um, and you could see them listed there, you know, that they'll be there in the slides. But this is critically, I I mean this is a hammer to that type of what I would consider unfair business practices that we had seen these unscrupulous entity bidders, trying to pull under the prior law where, you know, they're, they're looking for a loophole. We, we've seen, you know, not only did the legislature say, okay, we're gonna change the definitions and make that more difficult, which, you know, I'm sure if that had been the only provision we would still see, you know, certain entities trying to work them way around the statute. Obviously the, the language that we started with in the beginning not great. The, they're still trying to fix it, it's still, you know, in my opinion there are a lot of holes in it.

But this here is unambiguous. If you claim to be one of those eligible bidders, regardless of, you know, the nuances of how you claim to get there, you're going to be restricted to using that property. So it doesn't matter, you know, regardless of what it means you're in affordable housing or not, what category that you're, you're meeting, you're one of those entity bidders as defined in the prior section, you're restricted to this affordability company. Uh, what that does is it entirely deprives the incentive to, to acquire this property. And you know, what, we were seeing these entities claiming to be eligible bidders, not using it for that purpose, and instead turning around getting a cheap foreclosure property, turning it around, fixing and flipping it, making a great profit. That's no longer an option here that's being taken off the table.

On top of that, you know, it just, if it wasn't clear now, it's not just going to be left to the, you know, us litigators to fight out, okay, well how, how do we enforce any of this in in court? You know, how are judges gonna come out on it, you know, do especially some of the individuals affected, you know, may not have the money to, to bring a lawsuit and fight this thing all the way to, even if it has to go to an appellate court to get a decision on some of these issues. So on top of having that kind of hammer restricting the use, now we also have the threat of the attorney general being involved, and there's, there's a couple of ways that, this new a B 1837 tries to bring the Attorney General into a fold. So what the language says is that the attorney general, a county council, a city attorney, or a district attorney may bring an action for specific apor performance or any other remedy at equity or at law to enforce this section.

Now, <laugh>, that's very broad. Uh, I mean obviously specific of performance, but what does it mean? Any other remedy at equity or at law to enforce this section? To me that signifies extremely broad power for the Attorney general or, you know, some of these other government actors, charged with, you know, enforcing these statutes to Bree causes of action trying to, to get, get the offenders to, to, to fall in line. you know what, the most common thing I heard, you know, the last couple of years was, you know, people having questions about SB 1079, you know, telling me that, you know, they've been in constant contact with Nancy Skinner's office, you know, trying to get some sort of guidance. You know, how do I refer things to the attorney General? Can they even do anything about it? you know, what are my options here?

There, there's someone out there that's, that's committing fraud and how do I stop that from going on? Just, just as a, as a concerned citizen. So the interesting part that you have here is, is we touched on how, you know, some of the civil causes of action and, and there's all these uncertainty because of the new law and how the causes of action don't completely line up with what we had in the, in the system before. And these things need to work their way through the courts. We have an alternative means of imposing the requirements under AB 1837 now, which is an enforcement action by one of these government actors. And you know, that that really is a theme that we see throughout this AB 1837. I mean, we took a look at the expansion of the affidavit and the declaration requirements for ineligible tenant, buyer and how they, you know, we talked about having to PO post either the lease agreement along with your affidavit or at the very least submit rental payments or utility payments.

We saw the restriction of the definitions of entity eligible bidders really contracting the what types of nonprofits were going to be eligible here. They needed a I R S determination. They needed to be tied more closely to California than before. and then obviously, you know, what I called re referred to earlier as the hammer, which is, this 30 year affordability covenant restricting use no matter what else shenanigans goes on with respect to the eligible bidder claims. and you know, so, so in as part of this to encourage these attorney general actions, there is a new reporting requirement under AP a 1837, that the trustee now, once you have one of these SB 1079 sales, actually has to provide the Attorney General with certain information surrounding the date of the sale, identifying information of the prevailing bidder, within 15 days of that sale, actually concluding, you know, ostensibly the purpose being allowing the ag to track a little more closely.

Um, and in line, you know, ostensibly with this agenda to encourage the, the type of enforcement that we're talking about here. I mean, I, you know, we have cases where we've got one guy who's claimed to be a prospective owner occupant in 13 separate, separate foreclosure sales. If you recall, a prospective owner occupant says, that's gonna be my primary residence. I'm gonna move in within 60 days. I'm gonna live there for a year. in the past year and a half, he's said that for 13 different sales, which is obviously repeated instances of affidavits being submitted, fraud upon fraud upon fraud, this new mechanism, requiring the trustee to report those types of winning bidders. Hopefully, you know, assuming the AG <laugh> is listening to the many, many, many complaints that are being forwarding up there hopefully will prevent some of those situations, going forward in the future.

Uh, a couple of other, just quick more minor changes that come along with this AB 1837. Just wanted to briefly touch on, there's a clarification with respect to the affidavit that's submitted by an eligible bidder that it's actually a non-binding written notice of intent. So you're not, even though, you know, you submit within 15 days your affidavit saying, I intend to, to tender these funds, that's not actually binding. I haven't had that case before me, but, but I'm sure it's out there <laugh>, I'm sure somebody's litigated. the trustee may reasonably rely on affidavits. We talked about that. a new requirement associated with that now is that the affidavit or declaration of the winning bidder actually has to be attached as an exhibit to the trustee's deed when it's recorded. not a big thing there, but when this litigation props up, you know, the first thing that, the first thing that arises, you know, on my end, especially if it's someone who feels they've been defrauded by a eligible bidder, is, okay, well we need the affidavit cuz we're going in for an injunction preventing any further exchange of the property.

Well, if you can't get the affidavit, it's a little bit harder to prove the judge that you deserve A T R O. You deserve an injunction. Now that affidavit, rather than having to wait for discovery or subpoena to have to work its way through the system that affidavit has to be attached to the trustees chief and also, you know, just it, it's more transparent, it makes it public information, makes it easier for everybody to track what's going on with these entity bidders, who are claiming to meet these eligible bidder categories. Another clarification we have here, perspective owner occupants shall be in violation if illegal's owner compliance with the requirements of 29 24 n renders them unable to occupy the property as their primary residence. So we kind of have an interesting, concession here and, and as we'll see with the next kind of clarification too is that there's a recognition of, well, what happens, you know, when there's rights affecting the foreclosure sale outside of just the bid and the trustee and the foreclosing beneficiary, particularly with tenants, holdover tenants, there's a clarification here.

You know, a prospective owner, occupants not gonna be in violation if for some reason, they're prevented from actually occupying the property. Uh, that that's not a per se violation because the explicit language does say within 60 days. So just a clarification impossibility, we're not gonna hold that against you. on the other hand, tenants if any Fannie per property purchased to 29 24 M by an eligible bidder, make exercise any rights available equity and law, including unlawful detainer. So just uh, will, it was the case before, but a clarification, you know, nothing in espb tens every night so most to affect your unlawful detainer rights. Another cla I would say another clarification, pendency of a determination of finality under the process under this 45 day window and who actually is the highest bidder, is prohibited from causing termination of any hazard insurance coverage in effect of the time of the trustee sale.

So I've had that question come up a couple of times not through litigation, but just, you know, curious, curious bidders investors you know, who, who's responsible for the insurance on the property? Well, there's your clarification there. A final, and as I mentioned, this isn't explicitly AB 1837, SB 1079, but, it's within the same spirit enacted together, obviously the same year, seeking to accomplish a similar goal, which is AB 2170. You kind of been referred to as it was working its way up as the first look law. and with that it is limited to entities and annually foreclosed on 175 or more residential real properties in California limited the sales of real property containing one to four residential dwelling units acquired through foreclosure under a mortgage or deed of trust by qualifying institution, or that it's acquired at a foreclosure sale by a qualifying institution, qualifying institution as defined in that first category that we mentioned, which means you foreclose on 175 in California and you know, the meat of this AB 2170 is, you know, kind of the other end of a foreclosure sale is, you know, you get an R e o and it gets put on the market.

Well now that first 30 days of that property being listed the entity can actually only accept offers and from eligible bidders and it must respond in writing to all offers received by eligible bidders. Uh, the purpose there, again, kind of similar to what has to be 1079, is give a little bit more of an edge to, you know, these categories available bidders who might not be as sophisticated or, you know, ready to be on the ball to go after these foreclosed properties.

So in conclusion, the big changes with AB 1837, we talked about the changes to the categories of nonprofit eligible bidders and the other entities we sawm do away with L L P, we saw that for an L L C it has to be wholly owned by a qualifying nonprofit. second major change. This 30 year affordability covenant, it's gonna be imposed on these eligible bidder entities that acquire the properties up. Foreclosure sale completely restricts the use takes away that incentive to circumvent the eligible bidder categories AB 1837. Now we have an enforcement mechanism through the Attorney General, whereas rather than just forcing litigators to battle it out in civil court and to figure it out and wait for things to work their way down from appeals, you know, attorney General now has, you know, a little bit more of a <laugh>.

They, they have a, a right to enforce this attorney general and other, government actors, other certain government actors and there's reporting requirements that have to, to be given to them. And we've seen, you know, through the AB 1837, a couple of evidentiary stricter requirements on the bidders, that the Attorney General can enforce in pursuing any action. And lastly, we talked about AB 2170, that first look where within 30 days, only certain eligible bids can be accepted. So with that said, it looks like we've got about 10 minutes, four questions. So let me pull up the Q and A and let's see what we got here. Have you participated in or heard of any successful cases of buyers who lost properties to fraudulent S 1079 buyers who sue said buyers? yes, <laugh>, absolutely. I have many of those cases before me now.

Um, yeah, I mean, we have, we have cases where the, they claim to be prospective owner occupants and instead turn around and flip the property. prospective owner occupants where, you know, we didn't have, they didn't have a chance to flip the property, but, you know, they submitted a similar affidavit in 10 other instances. We have cases where you have entities claiming to be one of those former under the old law, nonprofits or being the business of affordable housing, but they've got no track record with California. They've never done any business, they've never done any transactions. They're just saying it. but unfortunately, maybe the old law didn't have any teeth in order to hold their feet to the fire, so to speak. So yes, I, I, I mean the, the big ones, there was kind of a theme through here. The big ones were surrounding either that prospective owner occupated turns and flipped the property or those nonprofit categories, where they're just, there's nothing that actually requires them to do anything with affordable housing.

What is your liability if you cannot occupy the property within 16 days because you have to evict? I, I think we, we addressed that just a couple slides back, but there was a clarification, in this new iteration of the law specifying that, you know, if it's an impossibility that you're not able to, to take over the property, then you're not gonna be held accountable for that. Let's see, if an eligible tenant slash owner occupant fails to perform close on property in the 45 date window timeframe, does clock restart again or conve investor non occupant purchase bid on the 46th day? no. If so, if, if you have the 45 day window and, if you have the 45 day window and someone submits an affidavit, they say, I'm going to to be the, I'm going to be an eligible bidder, but they never actually tender the funds. then the property, if there is another eligible bidder that does tender the funds, the property will go to them. Or if there is none, the property's gonna go to the highest bidder that was at the trustees sale. there's not gonna be any bid on the 46th day. It, it's gonna go to the highest bidder at the trustee sale.

The trustee may reasonably rely on this affidavit. The use of the word may suggest that there's an opening for the court, so the trustee responsible if the eligible bid lies and is found not to be an eligible bidder. Does that sound reasonable? you know, this is one of those things that if you've seen the earlier webinars, we definitely flagged this early on, is, well, what does this mean? You know, what, what, degree of evidence is especially, yes, the trustee may rely on the affidavit. What happens when the trustee is faced with overwhelming external evidence that maybe this person is fraudulent? Say for example, you know, the trustees involved in, in plenty of trustees sales and the same fraudulent bidder comes up to multiple ones and says, I'm a respective owner occupant, I'm a prospective owner occupant. Well, obviously that's an impossibility. He can't occupy all these properties as his primary residence.

What, what level of evidence, must the trustee consider against being able to rely on the affidavits that are being submitted? that, that's a, that's a litigation question. There's not a clear cut answer. it's something that, it's one of those things that is gonna, you know, I'm sure it's gonna come up in, I mean, it has come up in cases, but I'm sure it's gonna come up in some case where we're gonna need direction from the court, to, to resolve that issue. And unfortunately, just, you know, this, these, a lot of these issues are still working their way through the courts because of the infancy of the statute. it, it's not clear what the answer is. It's a fact dependent analysis, I would say.

Let's see. And also guys, just to let you know, if I don't get to your question here, I mean, I, I'm looking through 'em and some of 'em are a little bit more lengthy. you know, we've got 10 minutes of answering questions here, but, you can always reach out to me by email. I'll have a copy of these questions as well. and, and we'll be able to, to address your questions after the fact. So feel re feel free to reach out to me by email. What is the definition of prospective owner occupant any fine print conditions? you know, there, there's a slide here that explicitly states what it is. you know, you can feel free to go back and look at it, but they certify within 60 days they're gonna move onto the property. They, it's gonna be their primary residence for at least a year. And they're not a straw man. Essentially, there's an arms length relationship and they're not a straw man for, for some other agent.

If a person is claiming to be an eligible bidder based on owner occupancy for at least one year, does a 30 year rule apply? No, because it only applies to the entity type bidders. you'll, you can take, take a look back at the statute that we included, a couple slides back. like I said, these are gonna be distributed. There's a lot of language in there and it cite the specific categories of definitions of eligible bidders to which the affordability covenant will apply. but you'll see that it only applies to entity eligible bidders of which a prospective owner occupant is not.

Are trustees required to be transparent about the value of offers received during the N O I period? yes. They, there is a, there's a specific statute and I don't have that offhand. but there is a section in the code that I'm not sure if it was added with this most recent SB 1837, but there's a specific section and feel free to email me after, this and I can get that to you, that says explicitly what the trustee is required to communicate. And I know that was not a section that was initially included in s p 1079, but it is there now. So, feel free to reach out to me after this and I'll, I'll get that, specific code section to you.

Is the qualifying buyer required to render any funds to the trustee in the 15 days or all funds due by day 45? I'm assuming by qualifying buyer, you're, you mean eligible bidder And if that's the case, no, you're not required to tender any funds within the 15 days. You're only required to submit them, at the end of, within the 45 day window, what you are required to submit within 15 days, if is that notice of intent to bid, and an affidavit under penalty of perjury indicating the category of eligible bidder that you meet. and, and then keep in mind, you know, we have this new requirement with the eligible tenant buyer. If that's the bid category that you're qualifying under, you've gotta attach with your affidavit proof of either the your LA loan, your <laugh>, sorry, your lease agreement or utilities, six month utilities or six months rent payments. All right guys, so it's 12 o'clock, that's all the time we have. we have a copy of these Q and A’s. if I did not get to your question, like I said, feel free to reach out to me. these slides will all be distributed, you know, once we're done here, along with the recording as well. But like I said, don't be hesitant to reach out with any further questions you guys might have. And thank you for joining us. Thank you for your time. Bye.