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On September 20, Governor Newsom signed AB 2424, which establishes a significant set of new foreclosure notification and sale requirements for mortgage lenders. The law is effective as of January 1, 2025.
Third-Party Notification Requirement for Defaulting Borrowers
The law requires a lender to notify a defaulting borrower in their initial contact and subsequent due diligence letter that, a third party, such as a family member, U.S. Department of Housing and Urban Development (HUD)-certified housing counselor, or attorney, may record a request to receive copies of future notices of default and notices of sale, enabling the third party to assist the borrower in avoiding foreclosure. Such written disclosure must also be provided to a borrower before signing the mortgage or deed of trust.
Mandatory Foreclosure Sale Postponement for Listed Properties
The law prohibits a foreclosure sale until 45 days after recording of the notice of sale if the borrower lists the house for sale in a publicly available multiple listing service and the trustee is provided the listing agreement. Subsequently, if the trustee is provided with a copy of a purchase agreement for the sale of the listed property, the trustee must postpone the foreclosure sale for at least another 45 days from the date the purchase agreement is received.
Fair Market Value and Minimum Sale Price Requirements
The law also requires the mortgagee or beneficiary to provide the fair market value of the property to the trustee at least 10 days before the initial sale date, and prohibits the trustee from selling the property at the initial sale date for less than 67% of the property's fair market value. If the property remains unsold, the sale must be postponed for at least 7 days before proceeding, and the property may then be sold to the highest bidder on the trustee's second sale date.
Putting it into Practice: California's decision to expand mortgage borrower protections aligns with a recent ramping-up of mortgage lending-related rulemaking and enforcement by federal regulators (previously discussed here, here, and here). The goal of this new law is to provide borrowers with additional time and resources to avoid foreclosure and to ensure that properties are sold for amounts reasonably reflecting fair market value. The law's implementation will almost certainly result in extending the time it takes California lenders to complete the foreclosure process. Mortgage lenders in California should take steps to ensure their foreclosure procedures reflect these new requirements.
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