Why California Updated Its Mortgage Laws
When you’re preparing to buy a home, understanding your legal protections is just as important as understanding interest rates. California recently passed new laws that strengthen rights for mortgage borrowers—especially around foreclosure, disclosures, and subordinate liens. At LBC Mortgage, we make sure our clients understand these changes and how they impact their journey to homeownership. These new protections are designed to increase transparency, create fairer processes, and prevent predatory practices.
Mortgage regulations change as lawmakers respond to issues that affect homeowners across the state. In recent years, borrowers have faced challenges from outdated practices and aggressive foreclosure tactics. California lawmakers introduced Assembly Bills 2424 and 130 to fix those gaps. These laws address unfair foreclosure sales, lack of notification, and the reappearance of old second mortgages that threaten homeowners long after they thought the issue was resolved.
We believe these updates are long overdue. Homebuyers deserve clear communication and fair options. These new protections help reduce risk and create a more stable real estate market for everyone involved.
AB 2424: Stronger Foreclosure Disclosures and Procedures
Assembly Bill 2424 was signed into law on September 20, 2024, and goes into effect on January 1, 2025. This legislation introduces several key changes that give borrowers more time, information, and support during foreclosure proceedings.
Right to Third-Party Notification
Lenders must now inform borrowers that they can authorize a third party—such as a family member, housing counselor, or attorney—to receive copies of key foreclosure notices. This option must be disclosed both at loan origination and again during default.
This change allows trusted individuals to stay informed and assist the borrower during a stressful process. It helps prevent missed deadlines or miscommunications that can lead to foreclosure simply because the borrower didn’t understand the timeline.
Delay of Foreclosure Sale if Home Is Listed for Sale
Borrowers who act quickly and list their home for sale can benefit from mandatory foreclosure sale delays. If the property is on a multiple listing service and the listing agreement is submitted to the trustee, the foreclosure sale must be postponed for 45 days. If a purchase agreement is presented during this time, the sale must be delayed another 45 days.
This gives homeowners a real chance to avoid foreclosure through a sale, even late in the process. It also creates better outcomes for lenders and buyers by encouraging fair-market transactions instead of rushed sales.
Minimum Sale Price Requirements
AB 2424 also addresses the issue of homes being sold far below market value during foreclosure. Before the sale, lenders must provide an estimate of the property’s fair market value at least 10 days in advance. On the first scheduled foreclosure date, the trustee cannot sell the home for less than 67% of that value. If the property doesn’t sell, a second sale can only happen after a 7-day waiting period.
This ensures that homes aren’t sold at rock-bottom prices, which can hurt both the borrower and the surrounding neighborhood. It also gives borrowers confidence that they won’t lose their home for a fraction of what it’s worth.
AB 130: Protecting Against Zombie Second Mortgages
Assembly Bill 130 takes effect on June 30, 2025, and targets a different issue: zombie second mortgages. These are old, forgotten second loans that resurface years later, often with inflated balances and the threat of foreclosure.
What Are Zombie Mortgages?
Zombie second mortgages usually come from home equity lines or loans that were written off or ignored during the last housing crisis. Years later, borrowers are shocked when a debt collector or lender attempts to enforce these loans through foreclosure.
AB 130 requires that before any foreclosure is initiated on a junior lien, the servicer must record and send the borrower a certification. This document, signed under penalty of perjury, must confirm that the servicer and all prior servicers followed lawful practices throughout the life of the loan.
Holding Servicers Accountable
This certification must show that the servicers provided required statements, properly notified borrowers of any transfers, and followed all foreclosure timelines. If a borrower believes the certification is false, they can challenge it in court.
This added layer of accountability protects homeowners from aggressive or illegal attempts to collect on stale debts. It also discourages servicers from trying to use foreclosure as a shortcut for recovering long-dormant loans.
Real-World Impact for Homebuyers
Improved Communication and Transparency
Borrowers now have more opportunities to receive critical foreclosure information through third-party notifications. This is especially helpful for older homeowners, borrowers with language barriers, or those dealing with health issues.
More Time to Explore Options
By delaying foreclosure sales for listed homes and transactions under contract, the law gives borrowers more time to make informed decisions. They can negotiate with buyers, talk with housing counselors, and complete sales that could prevent foreclosure.
Protection from Below-Market Sales
Ensuring that foreclosure sales reflect a fair market value helps borrowers retain some equity and avoids destabilizing local property values. It also curbs the ability of investors to scoop up homes at unreasonably low prices.
Defense Against Old Debt Claims
Borrowers who thought old second mortgages were behind them now have protection. Lenders and debt buyers must prove they acted lawfully before foreclosing, giving borrowers a new layer of defense against predatory practices.
What Homebuyers Should Do Now
Understanding your rights is the first step. These laws mean more protection, but only if you take the right actions. Ask your lender about the third-party notification option when you apply. If you fall behind on payments, act quickly to list your home and notify the trustee. Keep records of any subordinate loans on your property and get legal advice if one reappears.
Most importantly, work with a mortgage team that puts your interests first. At LBC Mortgage, we stay informed about changing regulations so we can protect our clients at every step. We explain your rights clearly, help you navigate the loan process, and make sure your homeownership journey is built on solid ground.
Partner With LBC Mortgage
California’s new borrower protections represent a major step forward in leveling the playing field. But knowing the law isn’t enough—you need someone on your side who knows how to use it. Whether you’re a first-time buyer or refinancing your home, we guide you through every step.
At LBC Mortgage, we believe informed borrowers make the best decisions. With us, you’re not just getting a loan—you’re gaining a team that understands the law, knows the market, and puts your interests first. Let us help you take full advantage of every protection available and make your homeownership goals a reality.
