Despite our best efforts and those of our lobbyist, legislative partners, and industry allies, AB 130 was enacted without the adoption of our proposed amendments. As you know, this law imposes sweeping and retroactive restrictions on the enforceability of subordinate mortgage loans, placing unprecedented burdens on servicers and threatening the stability of junior lien lending across the state.

• AB 130 will render subordinate liens essentially unenforceable if any of the following has occurred during the life of the loan on ALL residential properties (including 1-4, 5+ (apartments) and mixed used) whether or not the loan was originated as a consumer loan or as a business purpose loan (this also includes lines of credit):
• Failure to communicate with the borrower for a period of 3 years;
• Failure to send any required monthly mortgage statement;
• Failure to send an ownership or servicing transfer notice; or
• Sent the borrower a “form” indicating that loan had been written off (including a 1099).
• Before foreclosing on any subordinate lien, the loan servicer must certify, under penalty of perjury, that none of the above events have occurred ever, by any servicer of the loan. It would be doubtful that a loan servicer would risk going to jail to certify acts that happened on another servicer’s watch, even if they believe everything was done properly.

While the bill was intended to target so-called “zombie” mortgages, it goes much farther, impacting any lender’s ability to foreclose on any subordinate lien, regardless of when it was originated. If subordinate loans cannot be foreclosed upon, it begs the question of whether originators will want to risk making new subordinate loans.