By Michelle Mierzwa, Esq.

Assembly Bill 2424, effective January 1, 2025, makes several revisions to the non-judicial foreclosure process designed to assist borrowers in avoiding foreclosure by prompting early marketing and sale of properties with sufficient equity for full repayment of existing encumbrances.  Sparked by the personal experience of a Sacramento legislative staffer, AB 2424 rose from the ashes of 2022’s failed Senate Bill 1323 to revive interest in protecting a borrower’s equity from loss through foreclosure sale in a much more simple manner.  The lending industry’s compromise offering in response to failed Senate Bill 1323 formed the basis for Assembly Bill 2424 and was negotiated between consumer groups and a lending industry coalition to include borrower protections that minimized adverse impacts on lenders.  All of the new provisions apply to loans encumbering one- to four-unit residential property, but some provisions are limited to first lien loans and/or those properties that are occupied by the borrower as a principal residence.  Following is an overview of the Bill’s modifications to the loan origination, servicing, and non-judicial foreclosure process.

Loan Origination Disclosures

AB 2424 enacted new Civil Code section 2932.2 for this new requirement.  The language of the statute is fairly self-explanatory and requires the originating lender or its agent provide to the borrower, before signing the mortgage or deed of trust, a written disclosure that a third party like a family member, HUD-certified housing counselor or attorney may record a request to receive copies of any notice of default and notice of sale, should the loan ever go into foreclosure.  Any request for notice must comply with the existing request for notice provisions in Civil Code section 2924b.  Loan originators will want to ensure that their disclosure package is enhanced to include this new required disclosure when originating any loan secured by any residential real property containing no more than four dwelling units.

Loan Servicing Pre-Foreclosure Disclosures

AB 2424 enhanced the Homeowner Bill of Rights (“HBOR”) pre-foreclosure due diligence requirements in Civil Code sections 2923.5 and 2923.55 to include a similar disclosure to the origination disclosure referenced above.  The new disclosure requirements apply to all lenders/servicers regardless of how many annual foreclosures they complete; but only apply to loans covered by HBOR, which include first lien mortgages or deeds of trust that are secured by owner-occupied residential real property containing no more than four dwelling units.  The disclosure is required to be provided in the initial phone call with the borrower to discuss foreclosure avoidance options, or if the borrower cannot be reached, in the due diligence contact correspondence to the borrower.  Loan servicers will want to ensure that their disclosure scripts and letter templates are enhanced to include this new required disclosure when servicing any loan that is covered by HBOR.

Postponements of Foreclosure Sale for Legitimate Property Marketing and Sale Processes

AB 2424 enhanced the foreclosure sale postponement process in Civil Code section 2924f to require one-time postponements of scheduled foreclosure sales in two circumstances where a borrower is attempting to sell the subject property.  First, if a borrower provides the trustee, at least 5 business days prior to the date of the scheduled sale, a valid listing agreement with a licensed real estate broker, the sale must be postponed for at least 45 days.  Second, if a borrower has used the above-mentioned listing agreement postponement process, the borrower can later deliver to the foreclosure trustee at least 5 business days prior to the date of the scheduled sale, a bona fide purchase agreement for sale of the subject property, and the sale must be postponed to a date at least 45 days after the date on which the purchase agreement was received by the trustee.  Each of the above postponement provisions require compliance with specific delivery requirements and document criteria, and they can only be used to obtain a postponement one time for each provision.  These postponement provisions apply to foreclosure of all types of loans secured by residential real property containing no more than four dwelling units, so lenders and servicers should be prepared to deal with listing agreement postponement requests beginning January 1, 2025.

Minimum Bid Requirements for Initial Trustee’s Sale

AB 2424 revised Civil Code section 2924f to require that the trustee can only accept a bid (at the first cried foreclosure sale) in an amount that is not less than 67 percent of the fair market value (“FMV”) of the property.  The lender must provide the foreclosure trustee with the FMV at least 10 days before the first scheduled foreclosure sale.  The FMV can be determined using a specified broker’s price opinion, an appraisal, a commercially utilized automated valuation model, or computerized property valuation system that is used to derive a real property value.  If no party submits a bid in an amount equal to or higher than the 67 percent minimum threshold, the foreclosure sale must be postponed for at least seven days before the property can be sold without any minimum bid requirements.  These bid and postponement provisions apply to foreclosure of all types of first lien loans secured by residential real property containing no more than four dwelling units.

AB 2424 impacts multiple stages in the life of a loan and includes some detailed new requirements, so loan originators, investors, servicers, foreclosure trustees and bidders need to be familiar with these new laws.  With an effective date of January 1, 2025, it is important to consult counsel to adopt updated procedures and document templates over the next two months.  Because compliance with this new legislation can be complicated, Wright Finlay & Zak LLP has developed compliance package materials designed to assist with prompt compliance with AB 2424.

Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice.  Please consult with counsel before taking any steps in reliance on any of the information contained herein.

 

Michelle Mierzwa is a Partner at WFZ. She can be reached at mmierzwa@wrightlegal.net