California’s foreclosure statutes have undergone significant transformation since SB 1079 was enacted in 2020. Assembly Bill 1837, signed into law in September 2022 and effective January 1, 2023, represents the third major legislative iteration addressing the conduct of foreclosure sales on certain residential properties in California. For private lenders with California loan exposure, understanding how AB-1837 modifies the SB 1079 framework is essential to managing foreclosure timelines, bidding procedures, and post-sale obligations.
Background: The SB 1079 Framework
SB 1079, enacted in 2020, fundamentally restructured the foreclosure sale process for 1-to-4 unit residential properties in California. The legislation created a class of “Eligible Bidders” — including prospective owner-occupants, qualified tenants, and certain non-profit organizations — and gave these parties the right to submit bids on foreclosed properties within a 45-day window following the trustee’s sale.
Under SB 1079, an entity that purchases a property at the trustee sale must then provide notice to Eligible Bidders, who may submit competing bids at or above the trustee sale price during the 45-day period. If a qualifying bid is received and the bidder completes the purchase, the third-party buyer at the trustee sale receives the sale price back but loses the property.
This framework was intended to give owner-occupants and community organizations the opportunity to acquire properties before they fell into the hands of large institutional investors. In practice, it also created significant uncertainty for private lenders navigating the foreclosure process.
Why AB-1837 Was Necessary
SB 1079’s implementation exposed a fundamental vulnerability: the Eligible Bidder framework was susceptible to abuse by sophisticated entities masquerading as qualified bidders under the statute. Reports emerged of organizations and investors who would submit Eligible Bidder affidavits and use the 45-day window to tie up a property — preventing the trustee sale purchaser from taking title — without ever genuinely intending to close.
This conduct created a dual harm. First, it undermined the stated purpose of the law by blocking legitimate owner-occupants from properties. Second, it directly harmed lenders and investors who had purchased properties at the trustee sale in good faith and found themselves unable to take possession of their collateral.
AB-1837 was introduced to close these loopholes and establish a more enforceable system for determining who actually qualifies as an Eligible Bidder.
Key Changes Introduced by AB-1837
Expanded and Clarified Definition of Eligible Bidders
AB-1837 refined and expanded the categories of Eligible Bidders while simultaneously establishing clearer requirements for each category. The statute now provides more granular definitions intended to distinguish genuine community organizations and owner-occupants from entities using the statute opportunistically.
Importantly, AB-1837 introduced a specific category for Eligible Tenant Buyers. To qualify as an Eligible Tenant Buyer, the bidder must attach documentation to their affidavit — specifically, either a current lease agreement or six months of utility bills or rent payment records demonstrating their tenancy. This documentation requirement significantly raises the evidentiary burden for this category of bidder, making fraudulent claims considerably harder to sustain.
Enforcement Mechanism Through the Attorney General
One of the most significant additions in AB-1837 is the establishment of an enforcement mechanism. The California Attorney General now has explicit authority to investigate and prosecute violations of the Eligible Bidder framework. This enforcement capacity adds real teeth to the statute’s anti-fraud provisions and creates a meaningful deterrent against the gaming behavior that plagued SB 1079’s early implementation.
30-Year Affordability Covenant for Entity Eligible Bidders
AB-1837 imposes a 30-year affordability covenant on properties acquired by certain entity-type Eligible Bidders at foreclosure sales. This provision is targeted specifically at nonprofit organizations and similar entities that receive the benefit of the Eligible Bidder framework; it does not apply to prospective owner-occupants, who are individual bidders rather than entity bidders.
The covenant requires that these properties remain subject to affordability restrictions for a period of 30 years following acquisition. Private lenders and investors should understand this provision, as it may affect the ultimate disposition of properties acquired under the statute.
Related Legislation: AB-2170
While not technically part of AB-1837, Assembly Bill 2170 was enacted in the same legislative session and addresses a related component of the SB 1079 framework. AB-2170 applies to entities that foreclose on more than 175 properties per year in California. For these large-scale foreclosing entities, AB-2170 requires that any REO listings be offered in a 30-day window during which only offers from certain Eligible Bidders may be accepted, before the property is opened to the general market.
This provision does not apply to most private lenders, who do not approach the 175-property threshold. However, lenders who work with large institutional servicers or who participate in larger portfolio sales should be aware of how this requirement may affect counterparties in transactions.
Practical Implications for Lenders Pursuing California Foreclosures
Notice Requirements Remain Critical
SB 1079 and AB-1837 impose specific notice obligations on the parties responsible for foreclosure. The trustee and the foreclosing lender must ensure that proper notice is provided to Eligible Bidders within the required timeframe following the trustee sale. Failure to comply with notice requirements can expose lenders to claims and delay the transfer of clear title.
Lenders who use experienced California foreclosure trustees — who are familiar with the SB 1079 and AB-1837 requirements — are in a much better position to navigate these obligations efficiently.
The 45-Day Window Remains In Effect
The core mechanism of SB 1079 — the 45-day window for Eligible Bidder bids — remains unchanged by AB-1837. Lenders and investors who purchase at the trustee sale must still anticipate a 45-day period during which they may not be able to take undisputed possession of the property.
Sophisticated buyers at the trustee sale will factor this window into their underwriting, including their carrying cost assumptions and post-acquisition plans.
Affidavit Reliability and Trustee Reliance
AB-1837 preserves the principle that a trustee may reasonably rely on a properly submitted Eligible Bidder affidavit. However, the question of what “reasonably rely” means in practice — particularly when the trustee has information suggesting a submitted affidavit is fraudulent — remains unsettled. This is an area where court guidance will continue to develop as cases arising under AB-1837 and SB 1079 work their way through the California courts.
Lenders involved in foreclosure transactions where suspicious affidavits are submitted should consult with legal counsel promptly. The standards for trustee liability in these situations are still being defined.
Q&A: Common Questions from Lenders
If an Eligible Bidder submits an affidavit but does not tender funds within the 45-day window, does the clock restart? No. If an eligible bidder submits a notice of intent but fails to tender the purchase price within the 45-day window, the property will be transferred to the highest bidder at the trustee sale. If there is a second Eligible Bidder who has tendered funds, that bidder may receive priority. There is no restart of the bidding period.
Does the 30-year affordability covenant apply to prospective owner-occupants? No. The 30-year covenant applies only to entity-type Eligible Bidders. A prospective owner-occupant who purchases through the SB 1079 process is not subject to the affordability covenant.
Are trustees required to disclose the value of offers received during the notice period? Yes. California law includes a specific provision requiring the trustee to communicate relevant bid information to interested parties during the notice period. Lenders should confirm with their foreclosure trustees that this disclosure obligation is being met in each transaction.
Staying Current on California Foreclosure Law
California’s foreclosure statutes continue to evolve. SB 1079 (2020), AB-1837 (2023), AB-2424 (2025), and AB 130 (2024) each represent incremental changes to a framework that is still developing. Private lenders with significant California exposure should maintain an ongoing relationship with legal counsel who can advise on new developments and ensure that foreclosure procedures comply with the current state of the law.
Geraci LLP’s banking, finance, and foreclosure teams have extensive experience advising private lenders on California foreclosure compliance. If you have questions about how AB-1837 or the SB 1079 framework affects your portfolio or your foreclosure procedures, contact our team.
Geraci LLP (949) 403-3488 90 Discovery, Irvine, CA 92618
