SB-1079: Navigating the Litigation Landmines of California’s New Foreclosure Process

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Effective January 1, 2021, California implemented a new non-judicial foreclosure process for all loans secured by 1-4 unit residential property providing certain advantages to “Eligible Bidders” in an effort to promote owner-occupancy and affordable housing for said properties. Defects in both the design and implementation of SB-1079 have and will continue to result in mounting litigation surrounding who is an Eligible Bidder, what is an Eligible Bid and even how the process should be conducted. Given that SB-1079 is still in its infancy, Appellate Courts have yet to resolve many of these questions, making it all the more critical to be aware of potential pitfalls.

Whether you’re a lender, trustee, or prospective bidder, this webinar examines the numerous potential litigation issues presented by SB-1079 and strategies for dealing with them in kind.

You will learn:

  1. The main elements of the revised non-judicial foreclosure process under SB-1079.
  2. The primary pitfalls in the statutory scheme susceptible to litigation disputes and how to avoid them.
  3. Applicable litigation strategies for handling respective disputes.

Jacoby Perez:

Good afternoon everyone. My name is Jacoby Perez. I'm a litigation attorney with Geraci Law Firm. For those I'm familiar with, what litigation does we handle, pretty much everything related to lawsuits. Whether you're the one being sued or you're the one bringing the lawsuit we can assist you with that. And that's everything from pre-litigation, which involves sending out demand letters maybe negotiating with parties to hopefully avoid a lawsuit legal memorandum to provide advice all the way up through trial and even appeals. So feel free if you have any questions, my information is right there, my email. Feel free to reach out if you have any questions about either any of the content that we cover today regarding SB-1079 or if you have any litigation issues related to SB-1079 or otherwise. We'd love to hear from you and we're happy to help out. A couple of preliminary housekeeping matters. This session is being recorded and afterwards these slides are going to be forwarded to you. If anyone has any questions, feel free to send them to the q and a box and if we're unable to answer them at the end of the session we'll try and get to them later on. So that said let's talk about SB-1079.

First and foremost, we're going to be looking at what is SB-1079 and why it was enacted. SB-1079 is a dramatic overhaul to the non-judicial foreclosure process in California that became effective January of last year. And as we move through this, we're specifically going to be looking at SB-1079 from a litigation perspective. We're going to be looking at litigation issues that we've seen over this past year litigation issues we expect to see going forward, and ultimately litigation issues that appellate courts at some point are going to have to rule on to provide case law, precedents, guidance and how these issues are going to be resolved. So our goal here today really for you, for those of you doing business in this space is hopefully educate a bit about these potential litigation pitfalls such that you can be aware of them and hopefully avoid them and should you be unable to do so and stumble into them, that's what we're here to do as a litigation department. We can assist you moving through those issues to hopefully find a resolution. So again, don't be shy to reach out my email right there on the first slide.

Why was SB-1079 enacted? I think this is a key consideration to keep in mind as we go through this material and to put succinctly, the primary purpose was to encourage owner occupied residential housing. Another key consideration as we go through, to what extent are the provisions of SB-1079 furthering that purpose of owner occupied housing? I think it's important to keep that question in mind as we move through it because that's the exact question that judges are going to be asking when they're faced with these litigation issues. When you have a new law like SB-1079 where there is little to no case law precedent to guide the judge's decision making and particularly when you have a law like this where areas are vague or unclear based on the language of the statute itself that's what judges are supposed to do. They're supposed to look to the legislative purpose, the legislative intent behind the statute that was enacted. So again, going back to the purpose of this webinar to assist you best practices for your businesses to avoid these litigation pitfalls the more that your business practices align with the purposes of the statute the better situated you will be should you face litigation issues down the road.

Before you see our agenda, we talked about what is SB-1079 and why? The first element we're going to look at is what is an eligible bidder under SB-1079 And basically these are the categories of individuals or entities that were carved out by the legislature to benefit from SB-1079. And you're going to see a theme as we move through it that the more removed that these categories get from the kind of ideal owner occupant situation the more likelihood there is for litigation problems and the less and less the statute actually serves the purpose for which it was enacted. We're then going to look at what is eligible bid.

We're going to touch on the kind of formalities of submitting a bid, but most importantly for the litigation purposes we're going to be looking at the affidavit that's submitted along with the bid. And what this affidavit does, it essentially is the bidder certifying that the bidder meets the qualifications such that the bidder should be afforded the benefits of this statutory structure. So we're going to be looking at to what extent is the eligible bidder actually required to meet these elements and what teeth, if any, does this affidavit have and are courts willing to enforce it should the eligible bidder not live up to the representations down the line? We're then going to look at a couple special provisions of SB-1079 also intended to serve this owner occupant purpose will then be looking at AB-175, which is an amendment to SB-1079 which is kind of going to be an interesting transition into the litigation issues because AB-175 in a lot of ways was clarification offered for some of the issues that we saw rising, particularly related to what an eligible bid is over the past year.

But even so it's helpful to take a look at those or useful to take a look at those not only to understand what the current law is, but some of the causes of action may have accrued over that past year when those clarifications for AB-175 weren't in place. We'll then move on to look at specific litigation issues with respect to eligible bidders specific litigation issues with respect to eligible bid some other tangential litigation issues and then we'll move on to a conclusion and we'll ask, I'll be able to answer some questions that you can submit at the end hopefully if we have enough time.

Okay, so what SB-1079? As you mentioned, SB-1079 went into effect the beginning of last year and it was this overhaul to the non-judicial foreclosure process when the property being foreclosed on contained one to four residential units. It's helpful in understanding what the legislature was thinking when they put this into place. The legislature was expecting a wave of foreclosures as a result of the COVID 19 pandemic and the related foreclosure moratoriums. And in expecting that the legislator kind of viewed or was concerned about parallels with the wave of foreclosures that happened back in 2007 with the Great Recession and particularly the legislature was concerned that about the fact that back then we saw a substantial transition through foreclosure from individual ownership of residential to institutional investors. So SB-1079 in a lot of ways was an effort for the legislature to try and get out ahead of this thing. And if you're an optimist to maybe provide an advantage to some of these prospective owner occupants if you're a cynic, at least to give them a fighting chance.

So how does SB-1079 accomplish that purpose of promoting owner occupancy? First and foremost it applies only to residential property and that's because residential property is the only property that can be owner occupied. Well, that seems fairly straightforward as we'll see later on with some of the litigation issues. It's not necessarily as clear cut as you might think. The second mechanism of SB-1079 to encourage owner occupancy was a prohibition on sellers bundling homes and then selling to an individual buyer. And you know, can see how this makes sense. If you're an individual perspective owner occupant trying to buy a home that you want to live on you likely have no interest in whatever else is bundled along with that property. And the effect that we saw back during the Great recession was this essentially was a mechanism that just screened out some of these perspective owner occupants.

So again, SB-1079 puts in place as prohibition. The properties have to be sold individually to give the perspective owner occupants a chance to bid. Then we get to really what's the meat of the SB-1079 change to the process and it's this 45 day period after the trustees sale in which an eligible bidder can submit an eligible bid. And so we'll take a look at what each of those categories mean and how they affect that bidding process. So what is an eligible bidder? Again, these are the categories that the legislature carved out to benefit from this revised bidding process. Kind of the ideal eligible bidder, so to speak, is the first category, which is an eligible tenant buyer an individual who's already living on the property and wants to buy it. Eligible tenant buyer that's a natural person who at the time of the trustee sale occupies the property as the person's primary residence at the time of the sale has an arms length agreement with the borrower predating the notice of default and is not related to the borrower of the borrower's family member.

These last two elements you can see are in place to discourage self dealing and kind of straw man bidding but that's also interesting when you contrast it with the next category that we're going to look at, which is a prospective owner occupant, and I'll abbreviate that likely to A P O O as we talk about it moving forward. The p o is kind of the common situation that the legislature was envisioning in passing this bill. A P O O is a third party who wants to purchase that property through foreclosures so that the p o O can live on the property. A p o is a natural person who provides an affidavit to the trustee stating that the p o O will occupy the property as the primary residence within 60 days after the deed is recorded, will live in the property for at least one year, is not related to the borrower and is not acting as the agent of any other person or entity in buying the property.

So again, a P O O is kind of a good situation, a desirable outcome under this purpose of promoting owner occupancy because you have an individual moving onto the property. Some interesting things though, looking at A P O O versus an eligible tenant buyer. An eligible tenant buyer. When we look back at it, an eligible tenant buyer is not required to live on the property after acquiring the property. They're only required to occupy the property as a primary residence at the time of the trustee sale. Additionally, we see this other category for A P O O. They're not allowed to be acting as an agent of any other person or entity and filing the property. Again, when we look back at an eligible tenant buyer, we don't have that same restriction. So it's an interesting situation in that what happens when you have a third party approaching an eligible tenant bidder asking the eligible tenant bidder to ultimately bid on their behalf essentially a straw bidder. Is there anything in the requirements of an eligible tenant buyer that prevents them from doing that? They only have to occupy the property at the time of the sale, have ar, they have to actually be a tenant and they can't be related. But other than that, there's no explicit restriction built in here at least based on the clear language of the statute preventing such a situation. And I can tell you from experience, it's definitely one we've seen.

Moving on to the other categories of eligible bidders you're going to see we're getting further and further removed from that sort of ideal of an owner occupant taking over the property. The next category is a nonprofit in which an eligible tenant buyer or perspective owner occupant is a voting member or director. This is sort of a hybrid in that yes, now we're letting entities kind of get in on the fund of the bidding process but you still have an owner occupant moving into the property ideally. Now we talked about eligible tenant buyer, maybe that's not necessarily the case, but that's more or less what the legislature was envisioning here. The next category, however, we see a substantial leap a substantial change in achieving kind of this purpose of owner occupancy. The next category is an eligible California nonprofit corporation whose primary activity is development and preservation of affordable rental housing. So what we see here is now no longer is there any prospective owner occupant moving onto the property noticeably. The property itself doesn't even have to necessarily be used for individual ownership or even affordable rental housing. All that's required is the primary activity of the California nonprofit be development and preservation of affordable housing. So as we look at it later on, we'll see why that can be potentially problematic.

The next category gets even further removed from that sort of ideal in which a limited partnership or limited liability company in which the managing general partner or managing member is that California nonprofit that we talked about in the last category. So in this instance now you have all the same questions that you had with the last category. What's an eligible California nonprofit? What does it mean for the primary activity to be in the development of preservation of affordable housing, the fact that the housing doesn't actually have to be used for affordable housing. You have all of those issues. And then on top of that, this L L P and this L L C does not even have to be affiliated with California just as long as the managing general partner or managing member is. And we'll take a look at why that can be problematic down the line.

There's a a few other categories here. They're a little more niche that we won't spend much time on just to address a community land trust, a limited equity housing cooperative and then various the government entities can also qualify as eligible bidders. Moving on, what is an eligible bid? So an eligible bidder must send a written notice of an intent to place a bid such that the trustee receives it no more than 15 days after the trustees sale. The eligible bidder must provide that affidavit to the trustee certifying identifying which category of eligible bidder that the eligible bidder belongs to and stating that they meet the respective criteria and the statute explicitly states the trustee may reasonably rely on this affidavit as we'll look at a little bit later on, what does that mean? Are they required to rely on it? Are they allowed to doubt it? <laugh>, especially when there's countervailing evidence the bid must be received by the trustee no later than 5:00 PM on the 45th day after the trustee sale.

And so a couple of special provisions for eligible tenant buyers can actually submit a bid to purchase the property equal to a full amount of the last and highest bid at the trustee sale. They don't have to exceed that last bid and further, if they're an eligible tenant buyer that equals it they win. That's it. Even if other forms of POS or other eligible bidder submit bids after the fact, the eligible Lieutenant Byer takes precedence here. Another kind of special provision here is that if A P O O is the highest bidder at the trustee sale, so keep in mind that A P O O is includes an eligible tenant buyer but an eligible tenant buyer or p o is the highest bidder at the sale, then that bidder is deemed the wind bidder and you do not have this 45 day window at all. So if you fall into that category where you're a bidder, that's falls into a p o or an eligibleeligib tenant buyer this is really the best mechanism to ensure that you avoid a lot of these SB-1079 issues. If you can be match the highest bid or be the highest bidder at the trustees sale you don't have to worry about all the problems that come along with this 45 day window.

And then lastly, the prospective owner occupant must submit an affidavit to the trustee that states that the person is a P L O and meets the requirement for A P O O. Again, that's when the p o is the highest at the trustee sale and again, the trustee can reasonably rely on that affidavit. A couple quick additional provisions that we won't spend a lot of time on, but just so you know that they're out there. There's some additional obligations for trustees that SB 79 puts into place kind of as a matter of functionality. Practicality the trustee has to post information about the sale through a website of telephone number. They have to maintain this telephone number within 45 days after a trustee sale. A trustee can make the information available or must make the information available through the website or telephone number for that period of 45 days, that eligible bid period if you will which gives the information of the date when the trustee sale took place, the amount of the lasting highest bid of the trustee sale and an address for the trustee can receive documents by mail or overnight delivery information. Must use the file number that is assigned to the case in the notice of sale. There's specific language that's required to be included in that notice of sale you it's there in the statute. We don't need to spend much time on it, but just that explicit language is there.

Lastly is kind of a secondary matter a bit outside of that purpose of owner occupancy. A secondary concern that the legislature had in looking at parallels with the Great Recession was back then a lot of the property subject to foreclosure were also susceptible to falling into disrepair, falling into nuisance conditions. So kind of as a secondary addition to SB-1079 the legislature provided some additional categories under which heightened penalties can be sought against the owner for allowing the property to fall into disrepair for the property, failure to maintain the property. Those categories permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action to prevent trespassers or squatters from remaining on the property and failing to take action to prevent mosquitoes issues from the growing in sandy waters or other conditions that might create those nuisance conditions we talked about. Fire hazard would probably fall into that same category.

So now let's take a look at AB-175 before we get into the litigation issues that are remaining and that we expect to remain. Let's look at AB-175. What AB-175 was here? AB-175 was an amendment put in place at the end of last year as an attempt by the legislature to address some of these problems that we've seen cropping up over this past year. Now importantly as we look through these, some of them are a bit minor, but as we move through them, it's important to keep in mind that even though the problems have now been addressed some of you doing business in this space may have causes of action that accrued because of the lack of clarity on the law in this space over the last year. So it's an interesting question of is AB-175, is it to be viewed as an amendment changing the existing law of SB-1079 or as I would argue in a lot of ways, is it to be viewed as a clarification of legislative intent with respect to SB-1079 trying to clear up for us what was intended with the structure that was in place, adding specificity to some of the vague areas.

So we'll look at one thing Amy 1 75 did clarified that p o that the affidavit that a p o submits must be delivered to the trustee at the auction or by 5:00 PM the next business day after the sale. Again, that's when an p o is the seeking to be the highest figure out in the sale to avoid that 45 day period clarification that the affidavit has to be submitted within this specific timeframe that was not clear under the prior statute. AB-175 requires a notice of intent to bid received inside the 15 day period for a notice of intent to include that statutory affidavit that we talked about regarding the category of eligible bidder that they are. Now this one is important. It's definitely an issue that again I've personally seen, which is you had a requirement that a notice of intent to bid be submitted within 15 days, but the prior statute did not explicitly state that the affidavit certifying they weren't eligible bidder had to be submitted within that 15 date period.

So you had circumstances where a notice of intent to bid might be sent within the 15 days and to what extent is a trustee supposed to rely on that? These notice of intent to bid are not by me in any way and unlike the affidavit, they're not even made under penalty of perjury. So it's important that with a 1 75 now it's made clear that the statutory affidavit has to accompany or at least has to be sent alongside or within that 15 day period of the notice of intent to some other minor changes. AB-175 requires a notice of intent to be received by 5:00 PM on the 15 day after the sale. Again, this was a lack of clarity kind of thing In the previous statute A notice of intent has to contain a phone number, a million address. A bid received within the 45 day period must contain a phone number and mailing address for the submitting party.

81 75 requires a representative of all tenant bidders to state the representative capacity in the statutory David and include a phone number and mailing address. So this is something that I didn't raise earlier. It's kind of an interesting little nuance in that eligible tenant buyers can actually collectively submit a bid under this statutory scheme and they can do so through a representative and it would be treated just as it would and individual eligible tenant buyer. And in that event, the eligible tenant buyers do you know can see here AB-175 requires the representative to provide certain information. AB-175 confirms the representative of all tenant buyers can submit a bid by the 45th day if at least one tenant buyer submits a notice of the intent. So again, a little bit more clarity on how that collective eligible tenant bidder bid gets submitted.

This next one is another one that we've seen come up. AB-175 limits the information required to be provided by the trustee about the post-sale auction process to only the sale date, the sale result, and the trustee contact information. We saw issues here where eligible prospective eligible bidders or prospective eligible bidders were basically wanted to bring causes of action against trustee for not providing additional information beyond this. And the prior statute was not clear that the trustee's responsibilities were limited to just providing this information. Amy 1 75 clarified that p o O excludes borrower related trust and related actors on behalf of an entity borrower. And as a final matter, it set a deadline to record the trustee deed upon sale to retain the relationship back priority from 18 to 21 days and from 45 to 60 days in the case of a notice of intent.

So moving on to the litigation issues regarding eligible bidders. First and foremost does SB-1079 even apply to this property? We kind of alluded to earlier fact that SB-1079 only applies to property containing wonderful residential units. Well, that might seem obvious on its face commercial. Is the property commercial or is it residential? It can get a little bit. I would argue that it's a bit more nuanced than that. Particularly what happens when you have properties that are under construction. You have a property that at the time of the deed maybe had a residential unit, but at the time of the foreclosure process contains nothing but a frame you have properties. What about properties that are being remodeled? What about properties that were supposed to be completed as one to four residential units by the time of the foreclosure sale but they're not completed?

All of these questions are not clear by just the fact that it SB-1079 just requires it to apply to one to four residential units. I would argue that this is one of those instances where the legislative purpose is and should be instructive. That owner occupancy kind of ideal. If a property is not habitable it doesn't really make sense to apply these bidding procedures built to favor owner occupants. If you can't live in it, why are we providing those benefits? So I would pause it that perhaps the relevant time in which one to four residential units must be contained would be at the time that the notice of default is recorded because then that would dictate what foreclosure procedure is going to take place thereafter. And even then there are extreme examples that we have yet to see but could get litigated through the court such as what happens if the property burns down in between the notice of default being recorded and the sale actually being conducted things like that. So even something that's simple as continued, wonderful residential units that minors face seem clear those who are familiar with legislation, that's not always the case.

So then we looked to an eligible tenant buyer is a natural person who at the time of the property occupies the PR residence. So we kind of touched on some of the issues related to other lieutenant buyer. We looked at the definition specifically with respect to if a third party can utilize an eligible tenant buyer essentially as their agent when we had eligible tenant buyers that there's no requirement that they actually are going to live the property moving forward. And when you have that situation ostensibly straw man bidders you get into questions and it comes time for litigation. What level of proof is required for any of these things? Essentially how much or how little do these parties have to do in order to get away with it, so to speak? And also you have a question of what is exactly does it mean for this to be the eligible tenant buyer's primary residence and well, what do they have to show in order for it to be enough that it be considered their primary residence?

Similarly there's this requirement that there be an armed length agreement for the eligible tenant buyer, but there's no requirement that be in writing. Again, what level of proof does it take in order for an eligible tenant buyer to be established? It essentially can boil down to a he said she said kind of situation. And again, anyone familiar with litigation knows that tends to get expensive. So that's again another problem area that we lack clarity on without case law precedent and again, not to borrower a borrower family member, just as a matter of technicality, the statute explicitly states that it's not a mortgage or a truster, the child, the spouse or a parent or the mortgage or truster ostensibly maybe other family members are okay. Again, it's drafted the way it is and we don't have guiding case law beyond just the explicit language. That's their

Litigation concerning a p o. So a natural person who submits an affidavit to the trustee stating that they're going to live on the property they're going to move in with a certain amount of time they're not related to the borrower, they're not acting as an agent. So there's an interesting issue with the wording when it comes to the p o In one area of the statute, the p o O is required to provide an affidavit to the trustee but in the specific section that allows for a P O O to be the highest bidder at the trustee sale and to do away with the 45 day process, the explicit language is that the trustee shall require the p o to provide the affidavit. So the litigation issue presented here, which is again one that I've personally is what happens with the trustee? What happens when you have a potential or a ostensible p O O that is the highest bidder at the trustee sale but the trustee does not require for that eligible or that affidavit certifying the category of eligible bidder that the P O o is it? Is the trustee liable, particularly when after the fact you have other eligible bids coming in and if that P O O loses the property to some of these later bids does the PMO have a cause of action in a sense because but for the trustee, not asking but for the trustee, yeah, not asking for that affidavit the P o O would've been the prevailing bidder at the trustee sale.

Again, p o O has to certify the occupying the property within 60 days after being recorded. Well, what if the property can't be inhabited within 60 days? Is the trustee allowed to make that call again, we talked a little bit about properties under construction. Is it within the trustee's ability to look at the sale of the property and make that decision? Keep in mind we have that language that a trustee may rely on these affidavits, but a consistent question that crops up is are they required to? What happens if don't when there's countervailing evidence? When are they required to actually doubt the contents of that affidavit another certification of a P o that they'll live in the property for at least a year. What happens when someone acquires a property certifying that they were A P O O and they move prior to a year being up is moving prior to a year being up evidence that initial affidavit was fraudulent.

We've seen cases where you have eligible bidders that lose out to a P O O at the trustee sale, and then what happens when the P O O then just turns around and it sells the property themselves before a year is up, does do those eligible bidders that lost out to the p o has a cause of action against that p o o. In that kind of same vein if the p o is required to live on the property, what sort of circumstances, extenuated circumstances might justify getting rid of the property within a year? And all of this really comes back to what sort of teeth does this affidavit have and to what extent are the courts going to be willing to enforce it?

Yeah, and then lastly, the p o O is they're not allowed to be an agent of any other person or entity and buying the property. Again, these declarance of any of these affidavits, are they bound by what they're stating in the affidavit? What you're talking about essentially is when you say, oh, I intend to move on the property as my primary residence, that that's subjective intent, <laugh> very hard to they can say, yeah, I intended to at the time, but because of a, b, c changed and I changed my mind for whatever reason. To what extent is that okay, what factors would justify a p o in doing that after the fact, if any? Does the even need that justification or is submitting the affidavit alone submission?

So now we're going to look at litigation concerning eligible bidder entities. We talked about those categories initially we were talking about the ones that promote kind of owner occupancy or where you end up with a owner occupant. And then we talked about how as we move further and further away there's kind of more and more problems. So this, there's this category where an eligible California nonprofit, which primary activity is development preservation of affordable rental housing, what is an eligible California nonprofit? What does it mean for the primary activity to be development and preservation of affordable housing? All of these specific questions, really big picture kind of pose the question of what does the nonprofit that's fitting this eligible bidder category, what business, if any, do they have to show in order to meet the requirements? Can you just start up a California nonprofit, say you intended, do affordable housing never have any transactions at all whatsoever in this field?

Is that enough to qualify? Again, a crucial aspect of that question is the fact that they don't actually have to intend to use this property at issue for the bid issue for affordable housing. They just have to have affordable housing be their primary activity. Similarly, all those same problems apply to the further removed category, which is an L L P or L L C in which the managing general partner or managing member is that eligible California nonprofit we talked about. And here kind of an additional issue with respect to litigation to be aware of is to what extent these LPs and LLCs are even required to be affiliated with California only they're managing general partner. To what extent are they able to rely on privacy laws that might exist in other highly propri states that allow sort of anonymous corporation maybe looking to Wyoming for example. To what extent are they able to rely on those privacy protections to avoid even scrutiny about the extent to which they're involved or the extent to which that they meet the sexual category? Put another way. Are they able to just simply came, well my managing general partner is only the one that's required to meet the California requirements. It's enough for me to simply say that that's my managing general partner. Beyond that, you're not allowed to look into our business dealings.

So let's move on to litigation regarding eligible bids. And I kind of touched on this before, but for litigation purposes, the meat of this is the affidavit we talked about. AU 1 75 touched on kind of the big one or one of the big ones, which is that the affidavit has to actually accompany the notice of intent to bid. And that's a big one because even before we've talked about how defective just an affidavit might be but before off all you had was a notice of intent to bid. That puts a trustee in a very hard spot particularly when you have this language that they may rely on it. Okay so what constitutes an affidavit first? A and the reason that the affidavit is supposed to have any teeth, the reason that it serves as this mechanism on which a trustee may reasonably rely is that it has to be made under oath and an affidavit made under oath in these circumstances. Essentially the purpose is to ensure that the affidavit is being made subject to penalty of perjury and subject to the jurisdiction, the loss of California.

Importantly and if it's going to be a while before we have an answer to this, but to what extent are courts going to be willing to scrutinize and to penalize abuses of this affidavit process right now? Again, there is no guiding case law on this. Is it enough to just certify these things and down the facts, say down the line, say I had a subjective intent things change, sorry about it, some additional bidding litigation considerations. What happens? Did the bid actually tender payment for the bid? So this is another one that we've seen come up a bit, is that when a trustee denies a bid is the bidder bidder required to complete the bid or has the cause of action accrued at the time that the trustee actually just denies the bid? Best practices obviously would say if you're on the bidder side, you want to do everything you can to complete that bid. But is that the requirement? That's not clear from the language of the statute. And if that isn't the requirement, if it's loan, if it's sufficient that the trustee just rejected the bid wrongfully what happens when there's competing bids and somebody does complete the bid but you didn't? Do you lose in that circumstance simply because the other party completed the bid?

Another issue we kind of seen as a recurring theme, but the trustee may rely on the affidavit. Is it required to? When can the trustee reject the notice of intent if it thinks the affidavit is false? In terms of here, what happens when there's evidence available to the trustee, especially publicly available evidence, for example, secretary of state filings that compete with or that refute even some of the certifications being made in the affidavit. If a trustee is aware of those issues with the affidavit that's been submitted, is the trustee allowed to reject the bid on that basis? How much evidence of the falsehood in the affidavit and allows the trustee to reject a bid and moving to the other side when if ever is the trustee actually required to reject an affidavit when it suspects it's blatantly fraudulent?

All of these are questions that eventually we're going to need an appellate court to rule on to provide guidance unless of course as of 1 75 the legislature steps in and kind of does what it can to amend and clarify what was intended here. As a final litigation note, there's all these instances with trustees sale and mistakes happened and there's, there's a body of law to account for mistake in a trustee's sale in which a trustee is permitted to rescind that trustee's sale. When you have a circumstance say, where a mistake in the sale results in this grossly inadequate closing price at the trustee sale itself and then a trustee appropriately rescinds pursuant to the case law that enables the trustee to do that essentially any party holding themselves out to be an eligible, bidder can simply submit a bid after the fact and create a cause of action claiming that the trustee wrongfully rescinded the sale just by virtue of submitting the bid. And that could literally apply to anybody. So anytime that you have a trustee sale being rescinded you're potentially susceptible based on the structure that we have and the lack of case law that we have, you're potentially susceptible to litigation from potential eligible bidders.

So in conclusion, we kind of talked about the reality is that whenever the highest bid of the trustees sale is well below property value, that situation where it's gross inadequate some of those, particularly some of those more fringe categories of eligible bidders they're going to be highly, highly motivated to qualify. And it kind of just goes back to this theme that we've been talking about, which is the further away you get it from being an individual owner occupant the less SB-1079 serves its purpose and the more vagueness in the statute kind of creates a susceptibility to fraud that really undermines the purpose of SB-1079. It provides loopholes potential loopholes that can be exploited by savvy institutional investors.

We talked about 1 75 addresses some of these problems, but not all. Even though some of these issues have been addressed, you may have already been subject to cause of action that have accrued as a result of some of the lack of clarity over the past year. And as a last takeaway does the affidavit, does it really have any teeth? Can it be relied on? To what extent can it be relied on and are courts moving forward going to enforce the certifications made in the affidavit? So with that as a final takeaway let's take a look at any questions we have. Looks like we got a few minutes here. What percentage of non-judicial foreclosures have you seen eligible bids of one to four unit properties attempting to purchase the property from the trustee? As far as a percentage I'm in the litigation side, so we only see it as once things have gone wrong, once there is a cause of action once essentially when we're dealing with it a hundred percent is what we're looking at, someone claiming to be an eligible bidder trying to purchase that property.

Is a trustee required to acknowledge a bid has been received or reject a bid, have instances in 2021 where trustee does not communicate at all, is there a timeframe in which the trustee is required to return bid funds? No, I mean not within the explicit language of the statute. This is another issue where we've got a little bit of clarity on what the trustee is required to communicate. If you take a look back at, we touched on AB-175 where it was explicit that all the trustee is required to communicate is information of about the sale. So if we, let me move back there. So the trustee the information that they're required to provide is limited to the sale date, the sale result, trustee contact information. Again, it's not clear if they're necessarily supposed to provide anything else. Yeah, I mean it's just one of those areas where it's not all that clear. Have you dealt with any 10 79 related case so far? If so, can you please provide a brief? Yeah, all of these situations that I've raised as far as potential litigation issue are ones that we've personally seen and been dealing with. So we're going to be providing these slides at the end. I reference all throughout this webinar SB-1079 issues that we've seen and have been dealing with.

If I understand correctly, this purchase right purchase right lasts for 45 days. Does the trustee need to accept the first bid right away or wait and find out if there are other bids during the 45 day period? Oh, that's a good question. It depends on the category of eligible bidder under which the bid is being submitted and there's quite a few nuances that we touched on. First and foremost, if you're the P O o submitting the highest bid of the trustee sale, there is no 45 day period. If you are an eligible tenant bidder after the trustees sell that matches the highest bid the other bids can be disregarded other than outside of those two specific circumstances. Yeah, I mean then assuming that the notice of intent and the affidavits are submitted within the 15 day period then yeah, the trustee before those conforming bids submitted within that time period would have to wait until to see if the bids are completed within the 45 timeframe.

Has this law increase the cost of foreclosed since trustee has to do more work and has more potential liability? Yeah, I mean, obviously I can't speak for the trustees themselves, but it would seem obvious to me. It would seem that you answered your own question. The biggest thing being this liability that's hanging out there with all these under unanswered questions of the trustees put in a very tough spot where they may rely on the affidavit, but to what extent are they required to what extent when the affidavit appears fraudulent, are they required to deny they have to balance their duty to the lenders versus these requirements that SB-1079 is kind of foist upon them? So yeah, I mean at the very least, the cost in potential liability and ultimately litigation absolutely increases the cost of foreclosure.

What happens if the property is non suitable condition to be occupied within 60 days? Many new owners will either need to make repairs or want to make improvements before occupying it will take more than 60 days. Yeah, that's a great question. That's one we raised as we were going through here. There's not, not a clear answer to that yet. I kind of positive that if the property, my perspective at least we kind of look back to the purpose of the statute, which is owner getting owner occupants in there, and those are the category of people we want to favor with this bidding process. If the property can't be inhabited within 60 days, it can't be inhabitable condition. I'm not sure that these bidding procedures should apply. It is not facilitating the owner occupant purpose that we've been talking about. So it looks like we're reaching 12 o'clock. It's about time to wrap up. I see we've got some additional questions here.

Feel free to, I can actually feel free to reach out via email go back to that first page. My email is that that's by far the way to get it hold of me. If you have any questions about this webinar as I mentioned, it's recorded. We're going to be sending it out after the fact as well. And additionally, if you are facing any SB-1079 issues or any other litigation issues, that's what we do here. We'd love to hear from you. We're happy to help. So thank you everybody for your time today and I look forward from hearing from you.

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