On September 20, 2024, California Governor Gavin Newsom signed AB 2424, a landmark bill aimed at strengthening protections for mortgage borrowers facing foreclosure.
Set to take effect on January 1, 2025, the new law introduces critical changes to the foreclosure process, offering additional support and resources to homeowners in default.
Mortgage lenders will need to adjust their procedures to comply with these new requirements, which are designed to protect borrowers’ rights and ensure properties are sold at fair market value.
Third-Party Notification Requirement for Defaulting Borrowers
One of the most significant changes under AB 2424 is the third-party notification requirement.
The law mandates that lenders inform defaulting borrowers of their right to designate a third party—such as a family member, HUD-certified housing counselor, or attorney—to receive copies of foreclosure-related notices.
This ensures that borrowers have trusted individuals or professionals who can help them navigate the foreclosure process and explore options to avoid it.
In addition to this notice during the borrower’s initial contact, lenders are also required to inform borrowers of this option before they sign the mortgage or deed of trust.
This proactive measure aims to create an early support system for borrowers, enabling them to seek advice and assistance long before a foreclosure sale takes place.
Postponement of Foreclosure Sale for Listed Properties
Under the new law, California mortgage lenders will be prohibited from proceeding with a foreclosure sale if the borrower has listed the property for sale in a publicly available multiple listing service (MLS). If the borrower submits a listing agreement to the trustee, the foreclosure sale must be delayed for at least 45 days.
Furthermore, if the borrower receives an offer and submits a purchase agreement, the trustee is required to postpone the foreclosure sale for an additional 45 days.
These delays provide borrowers with the time needed to complete the sale process and potentially avoid foreclosure.
Fair Market Value and Sale Price Requirements
Another important provision of AB 2424 is the fair market value disclosure requirement.
Mortgage lenders (or beneficiaries) will need to provide the trustee with an estimate of the property’s fair market value at least 10 days before the scheduled foreclosure sale. This ensures that the sale price is not significantly lower than the property’s actual worth.
Additionally, the law mandates that properties cannot be sold for less than 67% of their fair market value at the initial sale. If the property remains unsold after the first auction, the trustee must delay the sale for at least 7 days before proceeding with a second sale.
The property will then be sold to the highest bidder at this second auction.
Impact and Compliance for Mortgage Lenders
California’s decision to enhance borrower protections reflects a broader trend in the mortgage lending industry, with both state and federal regulators increasing scrutiny of foreclosure processes and lending practices. The primary goal of AB 2424 is to provide borrowers with more time and resources to prevent foreclosure and ensure that properties are sold at a fair price.
As a result, lenders operating in California will face a more prolonged foreclosure process. They must update their foreclosure procedures to comply with these new requirements and ensure that third-party notifications, fair market value disclosures, and sale postponements are properly handled.
Conclusion
Mortgage lenders in California should be aware of the new law’s impact on their operations and begin preparing for these changes well in advance of the January 2025 implementation date. Borrowers, meanwhile, will benefit from additional protections and opportunities to resolve their mortgage defaults outside of foreclosure.
