In the dynamic realm of residential real estate, California once again leads the way with the enactment of Assembly Bill (AB) 1837 and AB 2170, which took effect on January 1, 2023. These laws are designed to bolster individual homeownership, building upon the foundation laid by Senate Bill (SB) 1079 in 2020. SB 1079 mandated that institutions sell foreclosed homes individually rather than in bundles, aiming to increase affordable housing and community stability by restricting when investors can acquire foreclosed properties. The new legislation, codified in California Civil Code section 2923, extends the safeguards of SB 1079 until January 1, 2031.

California’s robust real estate market has attracted private equity firms, which have been acquiring single-family homes for their portfolios. According to CoreLogic, a California-based data analytics firm, these investors account for approximately 25% of the single-family homes in the market. They strategically target homes with high rental potential, primarily lower-end properties, thus reducing the availability of such homes for young and working-class homebuyers.

What Constitutes an “Institution”? Under Section 2923, an “Institution” is defined as individuals or entities that foreclose on 175 or more properties annually, as established by their primary regulatory agency in the preceding reporting period. This category includes:

  • Depository institutions operating under state or federal law.
  • Individuals licensed under the California Financing Law (Fin. Code §§ 22000, et seq.).
  • Individuals licensed under the California Residential Mortgage Lending Act (Fin. Code §§ 50000, et seq.).
  • Individuals licensed under the Real Estate Law (Bus. & Prof. Code §§ 10000, et seq.).

For Institutions, comprehending the implications of these new regulations is essential for navigating the intricate landscape of foreclosure sales.

AB 2170: Prioritizing Eligible Bidders and Ensuring Transparency AB 2170 introduced a significant shift in the foreclosure process for Institutions and investors. It mandates that Institutions prioritize “Eligible Bidders” during the initial 30-day window after listing a real estate-owned (REO) property for sale. This move levels the playing field against corporate investors. An “Eligible Bidder” in California’s foreclosure laws context refers to individuals or entities meeting specific criteria outlined in the Civil Code, including:

  1. Prospective Owner-Occupants: Natural persons intending to use the purchased property as their primary residence. This individual cannot be the mortgagor, trustor (or their close relatives), the grantor of a living trust named in the property’s title when the notice of default was recorded, or anyone acting as an agent for another entity in the property purchase.
  2. Nonprofit Corporations: Organizations recognized as nonprofit entities under relevant laws, focusing on housing and community development.
  3. California Community Land Trusts: Land trusts established to create and maintain affordable housing options for low- and moderate-income residents.
  4. Limited-Equity Housing Cooperatives: Housing cooperatives with ownership restrictions to ensure affordability and accessibility for lower-income residents.
  5. Public Entities: Government agencies at the local, regional, or state level engaged in housing and community development efforts.

What sets this new law apart is its commitment to transparency. Eligible Bidders must submit an affidavit, under penalty of perjury, confirming their qualification as an Eligible Bidder as defined in the statute. Additionally, trustees are now obligated to provide written responses to all offers from Eligible Bidders during this 30-day period before considering other offers. This critical change underscores the state’s intent to level the playing field and provide Eligible Bidders with a fair opportunity to purchase properties.

Promoting Affordable Housing and Community Stability The new law sets significant precedents in the realm of affordable housing. First, Institutions are no longer allowed to sell foreclosed properties in bundles, defined as two or more parcels of real property containing one to four residential dwelling units with at least two units acquired through foreclosure. Second, properties purchased by Eligible Bidders must be sold at an affordable housing cost or rented at an affordable rate for 30 years from the date the trustee’s deed is issued. This provision takes into account the area’s median income and aims to ensure accessibility for lower-income residents. For Institutions and investors, this aspect of the law underscores the importance of community stability and the role responsible investments play in sustaining neighborhoods. It will reduce the availability of these homes on the market for corporate investors over the long term.

Compliance and Opportunities The new law presents both challenges and opportunities for Institutions and investors active in the California foreclosure market. Complying with the new regulations is vital to avoid potential legal pitfalls. By prioritizing Eligible Bidders and promoting affordable housing, these laws foster a more equitable real estate environment and can build goodwill in the community for Institutions. While the landscape continues to evolve, it also opens doors for responsible investments aligned with the state’s goals of strengthening neighborhoods and expanding homeownership opportunities.

Conclusion In conclusion, California’s new foreclosure law ushers in an era of transparency, equity, and responsibility in the foreclosure market. For Institutions, these laws signal a call to action – to adapt to the changing landscape, prioritize Eligible Bidders, and contribute to the well-being of the communities they serve. As California continues to champion affordable housing and community stability, Institutions and investors have a unique opportunity to play a pivotal role in shaping a more inclusive and resilient housing market.

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🏠 California’s New Foreclosure Real Estate Laws (2023) Explained 🏠 Discover how California’s latest real estate laws, AB 1837 and AB 2170, are reshaping the housing market. These laws aim to boost individual homeownership, level the playing field for regular buyers, and promote affordable housing. Learn about the impact on investors and the vital role of “Eligible Bidders.” Stay tuned for a breakdown of these game-changing regulations and their implications

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