Private Lending Litigation Trends for SB 1079 in 2025

Steven Ernest:

Good morning, everybody, or afternoon, depending on where you are. My name's Steve Ernest. I'm the Director of Litigation and Bankruptcy here at Geraci Law Firm, and with me today is one of my most capable associates, Jacoby Perez, who also happens to be California's foremost authority on what started as Senate Bill 10 79. Candidly, I'm getting sick of calling it that because it's a statute now, but we'll go through that in a minute. Today we're going to have a webinar. We're going to talk about what's been happening with that wrench that someone threw into the foreclosure machinery a few years ago and how those cases are evolving. A little bit of change in the statute that will hopefully get you prepared for your bidding procedures and how you're going to approach the foreclosure sales. So there's that. We are recording this webinar, so I guess if you submit a question and you don't want anyone to know it's you submit it anonymously, and if you do, you can do some free advertising for your brand and put your name in it, so that'll be good.

As it relates to questions, please put those in the q and a section and we'll endeavor to answer every single one of your questions at the end. If you put them in the chat, we're probably never going to see them and status will abound, so don't do that. The questions and answers will be available for you at the end. If you want a recording of this webinar and so you can listen to it on your own and learn more, it will be available free of charge. We will also make the slides available to you also free of charge, and that is, I think everything as far as the intro goes. So we'll go ahead and skedaddle into what is the song that we came to sing today. So there's pictures of me and Jacoby and aren't those great? So here's our agenda. We're going to talk about the common types of claims, what the other side is saying, following your foreclosure sales, how they try to worm their way into owning your property for the credit bid that you made, credit bid's, something we don't really do very much anymore, and we'll talk about why today and we'll talk about what your defenses are and how you can keep the property that you bought at the foreclosure sale and not have to give to somebody else at a discount price, how you can defend yourself.

So we'll talk about that and give you some tips for private lenders, which is what this webinar is generally geared to. If you're not a private lender, you're on the other side, you're secreting your way into all of the best practices and advice that we have for private lenders. But good luck, skipped one. So what is Senate Bill 10 79? It went into effect about four years ago now, and it made changes to the non-judicial foreclosure process. It changed the way we think about bidding strategies. It changed the way the foreclosed properties are disposed of and how they're owned and the finality of the sale, a lot of things like that.

The idea, at least ostensibly what the legislature said was they were making this rule or change in law so that it would facilitate low cost housing. I don't know if they really believed that was true. I certainly don't think it has in practice effectuated itself, but we're only four years in, so maybe the legislature will prove to be both honest and accurate. Who knows? We'll see. So Senate Bill 10 79 is how it started in the Senate of the state of California. It was codified as civil code section 2 9 2 4 M, which is what we really should call it, but almost nobody does. So there you go. That was your first little tidbit of information. It changed. Well, it created what eligible bidders are, and it made availability of foreclosed property to what our eligible bidders for about a month and a half after a foreclosure takes place.

So to be an eligible bidder, the foreclosure takes place. Whomever it is is the successful bidder at the foreclosure sale. There's the guy with the clipboard and a pair of shorts on the courthouse steps. He bangs the gavel down, sale, transpires, certified check wire transfer, whatever, but title doesn't record or transfer right away anymore like it used to. Now, there's a 15 day period where eligible bidders can file their notice of intention to bid, and Jacoby's going to tell you about the refineries of that in a little while, and as long as they timely file their notice of intention, they get 45 days to buy the property at the same price the successful bidder did at the day of auction. So I mentioned earlier it changed the bidding strategies a lot of times foreclosing beneficiaries, which is just issue what we call credit bids, and then they would get the property cheaply and then they would sue their guarantors for what was the deficiency balance.

You can't really do that anymore unless you're particularly bold or you think the property's not tremendously valuable. If you do, you're going to run into these 10 79 problems. So, oh, there I called it 10 79. I wasn't supposed to 29 24 M problems. So eligible bidders, those are the people can buy the property away from the successful bidder at the foreclosure sale. Those are tenants at the property. So they already live there. They're ineligible bidder, they're prospective owner occupants. Somebody who says, well, I don't live there now, but I want to live there and I'm buying this property so that I can live there. In the final category, this one's a little mushier. These are the do-gooders, the nonprofit groups that say, well, we're going to buy it and we're going to convert it into low cost housing. Like I mentioned earlier, the legislature said what they were doing here was trying to facilitate low cost housing, and this is one of the ways they say they were going to do it.

So groups can claim to be nonprofits or charitable organizations that are going to purchase this property and convert it into low cost housing, and that's a way that they can become an eligible bidder. So they submit this notice of intention to bid within 15 days of the foreclosure sale, and then they get days 16 through 45 to fund it. And this purchase price is already established. Remember I said the purchase price of the property is exactly the same as the successful bidder, the foreclosing beneficiary in many cases. So that's what it is. All properties are not subject to this 29, 24 M, only certain ones. So it's only residential property. So if you're foreclosing a office building or a hotel or a warehouse or a bottling manufacturing place, none of those are subject to this statute only residences, and it's only residences that are between one and four units. So if you've got a five unit condominium building cannot be subject to 29 24 M. Don't have to worry about these bidders. You can conduct your foreclosure procedure with credit bids and whatever it is the same way you used to in the olden days. If it's a warehouse, same deal, not subject to this. If it's a single family residence, a duplex three unit complex or a four unit complex, it is subject to these. So those are the residences that can be affected by 29 24 M.

So how does it seek to promote owner occupancy? Well, like I said, it's limited to one to four residential unit properties, so places where families presumably are going to live and sellers can't bundle their homes together during a foreclosure and sell them to a single buyer and there's a 45 day window for the eligible bears, like I said there, they're going to buy it. The price is established at the day of the foreclosure when the guy in shorts with the clipboard on the courthouse steps span his gavel, that's going to be the price. But these eligible bidders are going to have to fund the purchase within that 45 day window. So it's sort of from days 16 to 45. They've got to buy it during that period of time if they're going to, and if they don't, then it reverts to the successful bidder at the regular foreclosure sale. I'm hoping I got all that stuff right, and Jacoby is going to set us straight if I didn't and if I did, he's going to move on to all the refineries that he is been seeing in practice over the past three, four years with these cases. So Jacoby, take it away.

Jacoby Perez:

Hello everyone. I'm Jacoby Perez with the litigation department. As Steve mentioned, the idea with 10 79 was to provide more affordable housing for Californians and kind of the method that they went about doing this was creating these categories of eligible bidders that we've touched upon, and you can kind of think about them in two main categories. You have kind of the individual eligible bidders, which would constitute what we call prospective owner occupants and eligible tenant buyers. And then you have the entity eligible bidders, which certain California nonprofits, we will take a look at certain government actors, but the reason I make that distinction about the two types of bidders is in addition to advantages that all the eligible bidders are provided, specifically that 15 day window to submit a notice of intent, and then that 45 day window after the sale to tender a bid owner occupants and eligible tenant buyers have even an additional advantage, which is if they are the highest bidders at the actual foreclosure sale itself, then all of this 45 day window stuff is off the table.

So when people come to me asking about, Hey, I want to submit a bid, what's the cleanest way to do it? That's typically the answer because as you'll see when we talk about the types of claims that are coming up in litigation, there are a lot of potential headaches that are created because of ambiguities in the statute, a lack of case law precedent, and just the fact that this revised process doesn't perfectly fit with what we have a prior understanding of in California as our property rights and our property law. So with that preamble, the category of individual eligible bidders, eligible tenant buyers is pretty much exactly what it sounds like. It's somebody who's occupying the property at the time of the foreclosure as a tenant, so they have a lease and they want to become the owners of the property. And you'll see, similar to the limitation on prospective owner occupants, it has to be an arm's length lease.

They can't have this preexisting relationship with, well, not preexisting, but they can't have a familial relationship with the borrower who's being foreclosed. And the idea is you want that separation because otherwise you just don't want things the borrower doing things that they otherwise shouldn't be doing as far as trying to deprive the lender of the lender's legitimate rights under the loan agreement and their ability to actually foreclose on this property. Similarly, as an eligible tenant buyer and as an owner occupant, you can't be an agent of some other actual party who is really the person that's intending to acquire the property, but they're propping you up as a strawman. And we'll see as we look into the types of claims, that's probably one of the most common ones because it's very easy to do, particularly because we've talked about this notice of intent that gets submitted within 15 days. Well, there's not really anything binding about that notice of intent.

The other category, and I would probably call it the primary category of eligible bidder that you see with these types of sales is the prospective owner occupant. And that's kind of what you would imagine just some individual who wants to acquire a home. It's basically this legislature's ideal archetype for why we set this whole procedure up. Somebody who wants to be a homeowner that they're going to buy one of these properties out of foreclosure and we're going to give them these additional tools so they can be on equal footing or maybe even better footing against investors that are at the sale. So these prospective owner occupants are individuals that they promise they're going to move in within 60 days of the trustees D being recorded. They promise they're going to maintain occupancy for at least a year. They have to have, again, certain arms length relationships that they can't be engaged with self-dealing or as an agent of somebody else.

They have to be a legitimate prospective owner occupant when they're buying this property. And the main idea with these prospective owner occupants is we give them this window after the foreclosure sale because the way that it happened before, all you were limited to doing was bidding at the sale. So you had to show up with multiple cashier's checks if you wanted to increase your bid. You had to be able to track when these sales that were often moved at the last minute when they were going to happen. There were just a lot of things that investors who were savvy about the process had an edge over doing your research beforehand. A lot of times just some individual wants to buy a property, they're not equipped to do all that. So the idea was let's give them this window after the sale where they can decide they can do their research as long as they submit a notice of intent, they can gather the funds, which is obviously a huge issue for a lot of these prospective owner occupants.

What comes up all the time, even still, even as title companies have become more familiar with this process, they're not necessarily willing to give title insurance for loans on these types of properties. And part of that is because there's a conditional aspect to it, right? You're submitting a bid, you don't know for sure whether you're going to get it, especially you're bidding in this 45 day window while somebody else could be submitted in a competing bid too. You may or may not get it. A lot of title insurance companies not comfortable with that situation, but at least now they have 45 days of time to try and get those affairs in order. That was kind of the primary idea. And within that 45 days, we're going to limit the investors to bidding just at the sale itself, so you're not competing against other investors Now as we'll see, that created some perverse incentives on behalf of investors that aren't the most scrupulous to try and exploit these types of advantages, but that's getting a little bit ahead of it.

As I mentioned, the other category of eligible bidders that we have aside from the individuals are the entity eligible bidders. I'm not going to go too deep into these. You can view the statute, we're going to disperse the slides later and the slides will reference the specific statutes that itemize what these categories are. They don't come up a whole lot, and the nonprofit would be the biggest one, the California based nonprofit. But just the kind of thing to know here, the biggest reason it doesn't come up as much anymore unless you are just a valid nonprofit that's trying to do some good out there. But with respect to these types of litigation claims that we see and the fraud that's going on, this statute doesn't come up as much anymore because in 2023, they made an amendment to the SB 10 79 process that attached what they called an affordability covenant to these foreclosed properties.

And what that said was, if you're going to be an entity that's acquiring one of these properties through a non-judicial foreclosure, well, you can only sell the property at what they call affordable housing prices. And you'll see in bullet point number three in the slide, there's a very specific definition in the health and safety code that defines how to calculate what they determine affordable housing prices are. But the main takeaway is that rather than someone just being able to call their business a nonprofit and then fixing and flipping the property for a major benefit, they now are at least somewhat limited to meeting the definition, the criteria that's imposed by the affordability covenant. And at least from my vantage, that's taken away a lot of the incentive to call your nonprofit or call some sham entity. You set up a nonprofit for the purpose of exploiting this statute as we'll.

See, it's kind shifted the fraud into other forms of claims, but at least with respect to the entity eligible bidders, that's not nearly as common anymore. So just to finish our recap about what 10 79 is before we go into the types of claims, what is an eligible bid? We talked about this notice of intent. Basically that is a letter and 29 24 M talks about certain information that has to be in there, but you're putting it in writing a notice to the trustee saying, Hey, I'm ineligible bidder and I intend to bid on this property and it has to be done within 15 days after the sale. Along with that notice of intent, you're required to submit an affidavit, and again, 29 24 M discusses the specific criteria that the affidavit has to affirm. But the bottom line is you're telling the trustee what category of eligible bidder you're claiming to be, and you're affirming that you meet the requirements for that category.

And so there's an address requirement, you have to sign it under penalty of perjury stating whether you you're signing it in California or not in California, it's subject to the laws of California. But that affidavit, although none of it is binding in the sense that you are required once you submit it to actually tender funds on the bid, that affidavit does become a critical piece of evidence when these claims do end up arising. And the reason being is these 10 79 cases revolve around what the intent of the, especially the ones about fraud, what the intent of the fraudulent bidder was when he submitted his bid under penalty of perjury. So very often you have somebody who's claiming to be something they're not. I'm a prospective owner occupant when reality, I'm just going to fix and flip the property. And that affidavit under penalty of perjury is kind of a critical lie that is necessary as part of this process for them to acquire the property. And then as a final note, once you have the 15th day window to submit that affidavit and the notice of intent, well then that triggers a 45 day period after the trustee sale by which you have to actually tender the funds. Now again, you're not required to tender those funds. It's not binding, submitting a notice of intent, but you do have that option of doing it by the 45th day.

And we kind of mentioned a couple of the advantages that are provided to the individuals over the entities for the types of eligible bidders on benched number two that we already talked about, which is that if you're an owner occupant or an eligible tenant buyer and you're the highest bidder at the sale, well, you don't have to worry about the 45 day period after the fact. And that can be important because like I mentioned, there's a lot of shenanigans that can go on with respect to that 45 day window we just talked about how if someone submits a notice of intent, well within the 15 days, they don't have to necessarily tender by 45. Well, that notice of intent is not binding at all. And one thing that we see is people who are investors that bid at sales, well, they've got a competitor, especially for a very expensive property, say $10 million property, got a competitor who wants the same properties, right? Well, if that competitor gets somebody to just submit a notice of intent, well then that 45 day window is triggered and that somebody that submits it, they're not required to tender, they're not required to actually buy the property. But what it does mean is that investor who was the bidder at the sale, who is a competitor now is out that $10 million that he bid for the 45 days in order to see whether somebody actually does tender in 45 days or not.

And that's just one example of the exploitation that has been going on with respect to the statute. So if you can be the highest bidder at the sale and you are an owner occupant, a legitimate tenant buyer, by far, the cleanest way to do this is just to not deal with the process at all, be the highest bidder at the sale. That's not always feasible, but best practices, that's certainly what we advise. And then the eligible tenant buyers actually are not just limited to that advantage at the sale itself. There's a very specific provision that allows if you are the bidder on behalf of all of the eligible tenant spires, all the eligible tenant bidders, and you certify the specific code section in your affidavit that you're representing all of the eligible tenants that are going to be bidding, you actually only can bid after the sale and you actually only need to overbid what the highest bid at the sale was. So you're not competing even against other owner occupants in that 15 day, 45 day window. Again, it's very specific. It's limited to someone who represents all of the other eligible tenants, and you have to be a tenant yourself, but if the shoe fits, it can be a very clean way of trying to acquire the property that you're trying to acquire.

Steven Ernest:

So with all the altruistic intentions that the legislature may have had five years ago, the fraudsters or nefarious among us have worked their way into this system such that like Jacoby was mentioning, somebody buys a 10 million house as a foreclosure sale. Well, he's actually got to fund the transaction that day, so his 10 million have gone somewhere. They're being held by the foreclosing beneficiary, something, but the guy with the 10 million doesn't get to use those and his money's going to be somewhere else and tied up without his ability to use it for 45 days, while someone who has filed a notice of intent that does not create a binding contract. So if they file their notice of intent and then they never show up with the 10 million bucks, nothing happens to them, there's no way to enforce making them buy it. And if they don't, then they just go away. So sadly, there's plenty of fraud in this statute.

Jacoby Perez:

Yeah, absolutely. And that's what we're going to look at. Now, the kind of most common one that we've already touched upon a couple of times was common form of fraud related to this is somebody just claiming to be a category that they're not? And the reasons to do that are, or at least should be pretty apparent by now, you gain all the advantages that are created for an eligible bidder and you get to wield those against your competitors. If you're an unscrupulous investor, you get to take advantage of all the incentives that are provided. Namely, if you're the highest bidder at the sale, then you get the property and don't have to compete after the fact, or other investors are limited to bidding at the sale and you can just overbid after the fact. You can do the extra research and take the 15 days and the 45 days to decide whether you actually want a tender. You don't have to worry about, like Steve just mentioned, your money being tied up for 45 days. Now you got to be willing to break the law to do that, but it's happening a lot.

Another common type of claim, so these claims can take various different forms. One of 'em is we represent the investor and the investor loses out the property, they were the highest bidder at the sale, and then some fraudster comes in after the fact and the investor's like, Hey, I wanted this property. That guy's not legitimate. He's never moved in. He still lives in Florida. The property's already on the market. What can I do? Can I bring a lawsuit? Another type of lawsuit that we have is kind of the reverse of that, right? People come to us and say, Hey, I bought this property. I'm a legitimate owner occupant. I wanted to move in there, but as soon as I got title to the property, this guy just went and sued me. Actually, some of 'em we're seeing now, there was a lawsuit before I even got title to the property.

And that's kind of another thing that's going on is that you have some of these entities that before the affordability covenant were trying to just pose as false nonprofits to get properties. Well, now they can't do that. They can't fix and flip it. So instead they're limited to bidding as investors, but what they're doing is they'll just bid at the sale, file a lawsuit before they even know whether there's any eligible bidders, get a Li Pendens on file, and maybe somebody comes in, maybe they don't. But the idea is let's scare away any potential bidders that are coming in after the fact.

The common types of causes of action that we would see in what I would call these fraudulent bidder claims. The claims where one person is claiming that the guy who actually got the property was a fraud or that I was prevented from getting the property because somebody committed a fraud quiet title. That's the basic cause of action saying, Hey, court, I want declaratory relief. I want the court you to say that I should get the property rather than that person cancellation of instrument declaratory relief, kind of adjacent to that basically, especially when they go and record a deed of trust after the sale. Hey, court, I want you to rule that that deed of trust needs to be canceled because it was illegitimate, it was acquired by fraud. Tortious interference is a cause of action that I think fits. We kind of mentioned how none of it is a perfect fit because just the way that property interests and property law work beforehand, you have these ideas about when you record something, now the foreclosure is final and now you're the owner of the property.

While we've introduced this uncertainty with 10 79 into the process, because it's not always clear now when a property interest is created, and that's because there's all these conditions that attach to who's actually going to get the property just being the highest bidder at the foreclosure sale. That's not enough most of the time anymore because you can have an eligible bidder come after the fact, but sometimes that eligible bidder only submits a notice of intent, doesn't actually tender, and you still do get the property or they do tender and they're fraudulent and you want to sue 'em. So there's all these conditions that are introduced and questions that we still need the court to answer about when are property rights actually created. So when we talk about a tortious interference claim, what that says is, Hey, I stood to gain an economic benefit, but because somebody else perpetrated a fraud, I was denied gaining that economic benefit.

So it's not a direct fraud claim because in these cases you don't have one bidder making false representations to the other bidder, right? They're not speaking to each other, which is what we would typically have a fraud claim. Somebody represents something to you, you rely on that representation and it's false. That would be a typical fraud claim. In this case, they're representing fraud to the trustee. The trustee is relying on that fraud, but because of it, the economic benefit that the legitimate bidder stood to gain is lost and now they are seeking damages. Similarly, sorry, just the last claim. Similarly unfair business practices, it's kind of this catchall type of claim that we have in California. You'll also hear it referred to as the UCL or section 17 200, and just this idea, it is not a damages provision per se. So unlike tortious interference, we would call it tort, where you seek damages, it's really about restitution and in joining bad, misleading, deceptive and fraudulent business practices. But it does kind of provide this catchall, especially for these repeated bad actors that are out there trying to perpetrate the statute. Now, we'll see again because of the lack of precedent that's related and who can actually bring a claim under unfair business practices, but it does seem to be another one that pops up most commonly in these types of cases.

So kind of as a subset of this fraudulent bidder type of claim. And just to kind of quickly illuminate how complicated some of these cases can get the instance of a foreclosed borrower where you have a borrower who is wrongfully foreclosed on and then that foreclosure goes to 10 79, and then that 10 79 gets acquired by a fraudulent bidder. Now you have a litigation situation where there's a number of different hoops to jump to decide even how is this even going to be resolved? And if you're a lender who's in that situation, it really is just kind of a mess. So when we get to the lender tips down the line, you'll see what our advice for some of the best practices are here. But I just wanted to illuminate this situation because one, I've dealt with it specifically, but two, because there are just so many moving parts, it can end up costing a lot more than maybe it needs to.

So it really helps to be aware of it In these situations. You have the first stage of, okay, which doesn't even necessarily have anything to do with the lender, but was the foreclosure wrongful? So depending on why the borrower and anyone who's dealt with litigation as a private lender knows borrowers can come up with a million different reasons why they think something was wrongful. But you have that basic piece of it. Then you have, okay, well what about the rights of this bidder who came in after the sale? And that creates a potential problem because we'll talk about what a bonafide purchaser is and whether they have any interest. We did a prior webinar about potential bankruptcy issues that are introduced. I won't go deep into that, but I just wanted to flag it. We do have another webinar that you can look up that both Steve and Marina did that's very good on that issue.

But there's this bankruptcy problem that's out there. And then after all that, what have nobody bids, and then you take the property back as the lender and now you have to worry about maybe potential additional claims from this borrower Related to this process, claiming defects in the foreclosure process, kind of the common types of claims we see inaccurate notices of default challenge to the loan documents alleged misrepresentations by the servicer or the lender less commonly, but elder abuse, usury, predatory lending are types of claims that we're seen a little bit more and more. And then this idea, oh, the loan actually wasn't a business purpose loan. This actually was a consumer loan and that's why it's wrong. So in addition to all the regular litigation problems that you have to be concerned, 10 79 has introduced this whole additional layer of considerations before you kind of go scorched earth. So just something to be aware of.

Another category beyond the fraudulent bidders categories is does 10 79 even apply to this type of case? Steve mentioned one to four residential units is typically when or is what the statute says when 29 24 M applies. But what if there's no units on the property? What if the property burned down? Is that one to four residential units? What if it's not habitable, which is something that comes up all the time. Either it's a unit that's under construction, is that a valid case? What if there's mold damage, which I've seen three or four cases already, there's mold damage that you can't even move into the property because it's not safe, and you only even find out about that and after you evict the tenants that were there, all of these are considerations for one, does 10 79 apply? And then two, if it does, what are actual the responsibilities of the person who acquired the property claiming to be ineligible bidder? How soon do they actually have to fix up the property and move in there or get the construction completed or fix that mold problem that they didn't know about? There's no answers in the actual statute itself, and there's frankly not much precedent out there either guiding us on this. So moving on to the kind of common defenses that we see to these types of claims.

One of the big ones out there is that there's just no private right of action created under civil code 29 24 M. And it's true, there's nothing specifically in the statute that says you're allowed to sue for a violation here. Additionally, there was an amendment a couple years ago that said certain government actors can sue for a violation. So at its base, there's kind of a split amongst the courts about whether people can even sue for certain violations. Now, we talked about some of the other theories of liability that maybe help you get around this problem or maybe they don't depending on who your judge is. But at the center of this, there is no explicit right of action in the statute that says you get to sue for a violation. And then the other one that I was just kind of elaborating on, I couldn't occupy the property.

So there was an amendment a couple years ago that did say you can't be held accountable for having to follow the unlawful detainer process and evict somebody. You're still required to do that. But what about other specific instances that might justify not having to move into the property? We talked about mold, we talked about, I saw one case where the person said, oh, my wife got sick. Now I couldn't move because we had to stay closer to her doctor. What are the justifications that would allow you to not have to follow through on that affidavit that you submitted that said, I am going to live there? And again, we touched on it already too, but is there actually a property interest even created? We talked about 70 detection, 7,200, the UCL standing. There was this proposition, proposition 64 that was created before 17 200 was basically being used as a pseudo class action where anybody who thought somebody was doing something wrong in business could bring a lawsuit in California, and it was amended to say, no, you actually have to suffer an economic injury.

And they actually phrased that an injury in fact. So there's a question that's still getting sorted out by the courts. Is there an injury in fact when just because you are the highest bidder at the sale and you lose out on the property because somebody else committed a fraud, did you actually have enough expectation of a benefit that we're going to say that's an injury? In fact, or similarly, if you wanted to submit a bid or you did submit a bid after the fact, but the trustee said, no, you lost because someone else was an owner occupant at the sale, even though they weren't, even though it was a fraud, did you have enough of an interest there? Is that an injury? In fact, we're still working through the appellate courts waiting for advice precedent on some of these issues.

Another huge defense that we mentioned, but the bonafide purchaser, and I'm sure a lot of you in the private lending space have heard about this before, but the idea is some innocent third party that comes and buys a property at a foreclosure sale, if they don't know anything about any underlying competing claims, the law is going to presume that they're valid buyers in most circumstances. And so part of this doctrine is while they can't have actual notice or constructive notice of any competing claims, but as long as they don't, we're going to call 'em bonafide purchasers and they get to keep the property. I mean, that can be hugely important when considering these types of claims, if what you're after is actually keeping the property. And it's also why moving quickly in these things matters because a Liz pendant would be considered constructive notice. And basically the idea is even if they don't actually know a Liz Pendant was recorded, it's a public document that the whole purpose is to put people on notice of a competing claim and we'll basically preempt that bonafide purchaser defense.

And it's important, I'm not going to go completely into the specific statutes here, but there's a lot of very, very strong language. And you'll see in the slide the code section that creates this presumption that a foreclosure set was valid if certain requirements for a bonafide purchaser are met, and it could be a very, very powerful tool in defending against these types of cases, other common defenses to these types of cases, the tender requirements, somebody never actually tendered the funds. So that goes back to this issue of did you ever even create a property, right? Did you have a property interest just because you said you were going to submit it, you submitted a notice of intent to bid. Are we going to say that's enough? And you could see certain hypotheticals where maybe it's closer to it, maybe it's not. What if you had the cash in hand, but trustee says, I'm not accepting it because we already determined there was an eligible bidder that won even though that guy was a fraud, or you just wrote an email to the trustee say, Hey, I have a notice of intent to bid.

You could see how those are kind of opposite ends of the spectrum. Are either of them going to be enough? So a common defense is, hey, you never created a property interest because you never actually tendered any funds that were required to do so. Another defense comes up in a lot of these cases is what we would probably call unclean hands, and it kind of goes hand in hand with that 17 200 claim we talked about because that's what we would call an equitable statute and unclean hands, this idea of in the law, we're not going to let you ask the court to do equity, to do fairness, to give you something in fairness, when you're out there doing something that's wrong as well. So where this comes up in these cases is somebody that wants to sue under 10 79 when them themselves are out there committing fraud in relation to the statute, and it's frankly a lot more common than you would think.

So kind of to close this out, really the purpose was to stress a lot of the uncertainty surrounding litigation related to these cases. I mean, here we are four years down the line and we're still kind of searching for judicial precedent on a lot of these issues that have remained vague or not been addressed by amendment and the wills of justice. They turn slowly. I can tell you we've seen divides amongst trial courts about how they deal with these issues and trial court decisions. That's not law, that's not binding law. So when you're considering all the factors for these cases, I think the overriding principle is if you can work something out other than having to wrestle with this litigation, it's probably going to in nurture your benefit. And there's several reasons for that, but the biggest one is just the equity's burning as the litigation is going on.

These cases don't typically have attorney's fees provision. You're talking about circumstantial evidence the whole time. So there's very rarely a silver bullet that somebody says, Hey, I'm going to go bid fraudulently on this property. So there's a lot of discovery involved to get to the point of proving the circumstances under what this person bid. You're talking about potential property inspections and going through bank records and the discovery fights about, there's a lot that goes into it. These cases aren't good for summary judgment in my opinion, because they tend to fixate around this issue of intent. And that's a factual issue, right? Proved by indirect evidence. So on summary judgment, as long as you can create a disputed material fact, you're going to survive that. So a lot of times you can be looking at going to a trial and by the time you get there, there's a very real risk that all the benefit of why somebody bought this property in the first place might be gone. And additionally, you've got the temporary restraining orders, injunction, expungement process, all can just hugely drive up the costs in relation to these types of cases. So it really, really makes sense if it's feasible, especially if you're a lender looking at this from the outside in to if there's something to be worked out to explore that option and do it quickly before the litigation escalates and that money starts to evaporate.

Steven Ernest:

All right, good stuff. Tips right there at the end, came free of charge as did the whole seminar. So that was a good summary and some good advice right there at the end. Let's see if I can find the questions here. They are anonymous attendee. I always enjoy these. How long does eligible bidder need to be in property prior to foreclosure NOD one day before? What supporting documentation is needed? So that would be a tenant, Jacoby, correct me if I'm wrong, but tenant I think means you're there the day of the foreclosure. I don't think there's a duration requirement preceding it. So if you live there the day of the foreclosure sale, I think you can rightly claim to be a tenant. Mind you, you're going to be going through some litigation and you're going to have to testify about that. So I think your tenancy claims become a bit thin, but you would satisfy the tenor of the statutes. Did I get that one right? Jacoby?

Jacoby Perez:

There is certain lease documentation that the statute actually itemizes. I don't have it offhand, but we can send it to you and whoever is interested, but it's there in the statute. I don't know the actual timing period, but there's either you have evidence of your lease itself that you have to provide or you can provide proof of utilities going back a certain time period to show proof of your tendency.

Steven Ernest:

Alright, next one, anonymous attendee. Once again, is it a violation of 10 79? Everybody likes calling it that instead of 29 24 M for a buyer to submit multiple owner occupant declarations for different properties within a short timeframe, a violation of the statute. I don't think it is Jacoby talked about and there isn't really a private right of action there. People do exactly what you're talking about though. Anonymous attendee. We have, and Jacoby don't say his name, but we have a guy who is a party to several of our SB 29, or I'm sorry, the 29 24 M cases. His name is probably in about half of 'em, and he has done exactly what this is saying. And remember, you have a court case, so you're going to have to show up, you're going to have to prove the things that you're saying and you're going to have to testify at depositions in five of these cases. And if in all five of them you're claiming that you live in this house better have a pretty good explanation for how that could be true.

Jacoby Perez:

And just to expound a little bit on that, especially if you acquire multiple within multiple of these properties within a certain time period. But as far as just submitting a notice of intent itself, as we mentioned, there's nothing binding about that. So you're kind of creating an option for yourself if you are someone who's looking to bid on these, you're kind of creating an option for yourself to choose whether you want to bid or not. So yeah, I mean if you're looking on a website and there's five different properties that you think you might be interested in and you submit notice of intent within a couple of days, there's nothing inherently illegal about it. Now, if you acquire all five of those and you tender on them, well then it's impossible that you're going to keep 'em all as a primary residence and then you might be facing a lawsuit. But as far as submitting just the notices in myself, there's nothing inherently illegal about that.

Steven Ernest:

Alright, anonymous attendee. I don't know if this is the same one every time or just nobody wants us to know who is listening, but here we go. How is a one to four unit residential determined zoning structure use? If an SFR is being used as an office and a yoga studio and commercially zoned, would 10 79 apply? So I think it's going to be according to the city county property records, I don't think that you can just claim a warehouse and you've subdivided it into four units and people are living there and therefore it's subject to that. I don't think that's going to work. Interesting part underlying this question, we see a lot of mixed use. Those are pretty popular now with the coffee shop on the first floor and a residence on the second floor. Are those going to apply to 29 24 M? I would guess they probably would. The presence of one single family residence is probably going to drag the mixed use into it. But if somebody is trying to play games and tell you that a warehouse is actually a residence because they put a couple of sleeping bags in there, I wouldn't anticipate that's going to fly. It would be litigated, but that would be a relatively short cause case for you.

Is it a violation? Oh, look at this. Civil code 29 24 M. Somebody is participating in my delusion that we're going to use the statute instead of the Senate bill to submit multiple owner occupant declarations across different properties. So I think we got to this one a minute ago. No, it's not a violation of the statute and it happens, and I know the guy's name who is doing that a lot, and he's in a bunch of our cases. So maybe that's the anonymous attendee who's asking this question. It's not a violation of statute, but it's a good way to lose all of your lawsuits and all of the bids that you're making is to sort of get too greedy. Does this make the third party purchaser ineligible for the sale? No, it's not going to disqualify anyone and you're going to have to prove their ineligibility. It's not going to be determined by some sort of legislative. How are trustees required to validate the legitimacy of an owner? I've been declaration at the time of sale under civil code 29 20 4:00 AM it's really catching on now. And what due DS are expected to ensure the declaration is not fraudulent or duplicative across multiple properties? I don't think the trustee does that job. I think that's going to be the responsibility of the foreclosing beneficiary if they took the property back or the successful bidder or somebody else who has a claim. What do you think about that, Jacoby?

Jacoby Perez:

Yeah, I think that's right. There is a provision in 29 24 M that says the trustees entitled to rely on the affidavits that are submitted to them, and that's why they're supposed to be under penalty of perjury and all these requirements. It's definitely an interesting question though, when the trustee has knowledge outside of the actual affidavit that's being submitted, and it's a scenario I've seen a couple of different times, at the end of the day, I think the court's probably not going to hold the trustee to that standard because they're not lawyers and they get screwed either way, right? If they make a determination, a legal determination that this guy was false and he wasn't well, then they're going to get sued too. So it's not really their responsibility to interpret the law. It's definitely an interesting unanswered question though, if they're aware that the bid is fraudulent outside of it. And one thing I can tell you that we've done and had some success with is just sending demand letters to the trustees early on, giving them all this information, making sure they're aware of all the external factors outside of the actual bid, and a diligent trustee is going to take that stuff into consideration.

Steven Ernest:

All right, cool. Anonymous attendee yet again. Can someone who submitted a valid owner occupant declaration for personal use, do I have standing to challenge the outcome of someone who submitted multiple owner occupant declarations? So it sounds like this is a circumstance where somebody submits their declaration saying they want to move into the house, and then six other people other submit other ones that they intend to bid notice of intent to bid. So who wins that one? If you get six people who are asking, I think it's probably the first one who submits their NOI gets the first shot, right?

Jacoby Perez:

Yeah, I mean, there's a lot of factors there that are unanswered. One, did you tender the funds? Did somebody else tender the funds? What were the other bids that were competing? And kind of the simple answer is there's a lot of uncertainty. It really is a factually dependent thing.

Steven Ernest:

Yeah, I think the best practice in that one would be to be the first one to submit your notice and the first one to submit your bid and the first one to tender the funds, and you probably have the best chance, but just because someone else is doing some of those things perhaps before you, there's plenty of fraudsters playing in this field right now. So digging into their claims if you have the wherewithal and interest in doing it, is probably going to prove successful for you. All right. First question. From a person who's willing to identify herself, Jen Glassmaker, what if any, are the lender requirements for business purpose loans on properties purchased at auction as an eligible bidder? What are the requirements or? Well, the business purpose loan is foreclosed the same way a consumer loan is. So from that perspective, it would be the same as it is any other loan purchased at auction as an eligible bidder.

Is this Jacoby, do you think This one is asking, and Jen, I'm sorry for maybe missing your point, but if the eligible bidder is financing their purchase transaction with a business purpose loan, if that's the question, it's going to disqualify a lot of the requirements of the section because remember, the person buying the house is supposed to be moving in there to live there. And so if it's a business purpose loan, it's not going to work well, if it's a single family residence, what if it's a four unit multiplex and they're going to live in one of 'em and they're going to rent the other three as low cost housing.

But your business purpose, your commercial loan is going to have to spell out that it's low cost housing, and there's going to be some requirements in that regard. So I apologize in advance if I've missed part of the tenor of your question, but that's what I think it was after. One more from a named Inquisitor, Adriana Shannon. If an owner occupant declaration is submitted at the time of sale and the trustee accepts it, the sale is considered final under 29, 24 M effectively blocking any letters of intent from other eligible bidders. It doesn't seem like a question, it's a statement. And I think that's right, right, Jacoby?

Jacoby Perez:

Yep.

Steven Ernest:

Okay. Doesn't this create a loophole that undermines the purpose of the statute? Oh, good. We're going to undermine the legislature now, especially if the declaration is questionable or submitted in bad faith. Well, anything can be litigated. And like I say, there are several of these slides. I think five of our 21 slides talked about fraudsters, so it certainly happens. And is your firm pursuing or supporting any legislative or procedural changes to address the issue? The answer to that one is no. We don't really do a lot of lobbying here. We're member, well, we're the general counsel of the American Association of Private Lenders, which does some lobbying and we're members of the California Mortgage Association, which also does, but I don't know any active campaigns specifically related to that issue. But those are the two places I would probably look a PL and CMA.

All right. Well, the marketing folks told me that the presentation, the slides were supposed to take 45 minutes, and I didn't look at the clock, but I think we just about nailed it. It was somewhere between 44 and 46, so that was extraordinarily well done. They also told me that the presentation writ large was supposed to be an hour, which is going to occur in about 20 seconds. So with no other questions, I think we've answered all of them. There was something in the chat that we said we weren't going to talk about, and I don't even know how to open that. So it's now been an hour. I hope you guys got the value for the money that you spent joining this chat. Jacoby, I thank you profusely for your expertise. And spoiler, Jacoby prepared all the slides. I just sort of scrolled through 'em, so great job. Any other closing comments, Jacoby?

Jacoby Perez:

No, thanks everyone.

Steven Ernest:

Great. We'll see you next time and our information is on the screen so that you can contact us if you have other questions that you want to be handled offline or if there's anything we can help you with. So thank you all so much and we'll see you next time.