California’s New Foreclosure Law
On January 1, 2021 new foreclosure laws went into effect that altered the foreclosure process in California. Under Senate Bill 1079 signed into law on September 28, 2020, a property that is a one-to-four-unit residential dwellings is subject to the new foreclosure rules. The law added Section 2924m which states that if a prospective owner occupant is the last and highest bidder at the trustee’s sale then the sale is final. The section reads as follows
Civil Code 2924m(c)(1): If a prospective owner-occupant is the last and highest bidder at the trustee’s sale, the date upon which the conditions set forth in Section 2924h of the Civil Code for the sale to become final are met. The trustee shall require the prospective owner-occupant to submit the affidavit described in paragraph (1) of subdivision (a). The trustee may reasonably rely upon this affidavit.
The law defines a prospective owner-occupant as:
(1) “Prospective owner-occupant” means a natural person who presents to the trustee an affidavit that:
(A) They will occupy the property as their primary residence within 60 days of the trustee’s deed being recorded.
(B) They will maintain their occupancy for at least one year.
(C) They are not the mortgagor or trustor, or the child, spouse, or parent of the mortgagor or trustor.
(D) They are not acting as the agent of any other person or entity in purchasing the real property.
Under California Civil Code 2924m when a prospective owner occupant is not the last and highest bidder then the sale is not final. Section 2924m (c) provides that a sale is deemed final on the earliest of either a prospective owner-occupant being the last and highest bidder at the trustee’s sale or 15 days after the trustee’s sale unless at least one eligible tenant buyer or eligible bidder submits a bid or intent to bid. If an eligible bid or intent to bid is submitted, then the sale becomes final as of 5 p.m. on the 45th day after the trustee’s sale where the eligible bidder that submitted the highest bid will be deemed the last and highest bidder. More detailed information on the new law can be found in California’s Legislative Information website: Foreclosure Law SB-1079
Bankruptcy may allow you to regain your home after the foreclosure sale if the sale is not deemed final on the foreclosure sale date. If a prospective owner occupant did not bid at the foreclosure sale, then the sale is not final.
New Possible Theory for Regaining Property
Under California’s new foreclosure law, if the sale is not final a prospective non-occupant bidder would not gain any legal or equitable title to the property on the sale date. If a bankruptcy case is filed prior to the sale becoming final then, the home can become part of the bankruptcy estate and any action to transfer the interest in the property would be in violation of the automatic stay.
Further, the sale of the home became void upon the filing of the bankruptcy petition and any party is prohibited under §362 of the bankruptcy code from executing, delivering and recording a Trustee’s Deed Upon Sale. In some cases, it may allow a party to file bankruptcy and regain their property up to 45 days after the foreclosure sale date if the sale is not final. Ultimately whether the courts will treat the sale as not being final will be highly dependent on how the courts interpret the new foreclosure law and the language in this law.
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