On September 20, 2024, Governor Gavin Newsom signed Assembly Bill 2424 (AB 2424), enacting new protections for mortgage borrowers in California.
Effective January 1, 2025, this law introduces significant changes to foreclosure notification and sale requirements aimed at supporting borrowers facing financial hardship.
Key Provisions of AB 2424
Third-Party Notification Requirement for Defaulting Borrowers
Under the new law, lenders must inform defaulting borrowers during their initial contact and in subsequent due diligence letters that a third party—such as a family member, HUD-certified housing counselor, or attorney—can request copies of future notices of default and notices of sale.
This provision enables third parties to assist borrowers in navigating the foreclosure process. Additionally, this disclosure must be provided to borrowers before they sign any mortgage or deed of trust.
Mandatory Foreclosure Sale Postponement for Listed Properties
AB 2424 prohibits foreclosure sales until at least 45 days after the notice of sale is recorded if the borrower has listed the property for sale in a publicly available multiple listing service. The trustee must be provided with the listing agreement, and if a purchase agreement is later submitted, the foreclosure sale must be postponed for an additional 45 days.
Fair Market Value and Minimum Sale Price Requirements
The new law mandates that mortgagees or beneficiaries provide the fair market value of the property to the trustee at least 10 days before the initial sale date.
The trustee is then prohibited from selling the property for less than 67% of its fair market value on the initial sale date. If the property remains unsold, the sale must be postponed for at least seven days before proceeding, allowing it to be sold to the highest bidder on a subsequent sale date.
Impact on Borrowers and Lenders
California’s decision to enhance protections for mortgage borrowers aligns with a broader trend of increased regulatory oversight of mortgage lending practices by federal authorities.
The goal of AB 2424 is to provide borrowers with more time and resources to prevent foreclosure while ensuring properties are sold at prices reflecting their fair market value.
The implementation of this law is expected to lengthen the foreclosure process for lenders in California. As such, mortgage lenders should take immediate steps to revise their foreclosure procedures to comply with these new requirements.
