In the wake of the devastating wildfires that ravaged Southern California in early January of 2025, several legislative efforts have been proposed to provide relief to California residents impacted by the fires. One proposed piece of legislation is Assembly Bill 238 (AB 238), also known as the Mortgage Deferment Act (the “Act”), which aims to provide necessary financial relief to victims of the LA County Wildfires and bridge the gap until insurance claims are processed and rebuilding efforts can begin.
Read below to learn more about how AB 238 may impact your business if you are a lender in the state of California.
Click here to jump to the March 28, 2025 update.
AB 238: Everything You Need to Know
If implemented, AB 238 allows borrowers to request an initial pause of their monthly mortgage payments for up to 360 days (initial delay of up to 180 days and then up to another 180 days if requested by the borrower) to provide financial relief to those who have lost their homes or livelihood to wildfire.
Under AB 238, “borrower” is defined as a natural person who is a mortgagor, trustor, or a confirmed successor in interest, or a person who holds a power of attorney for a mortgagor or trustor or a confirmed successor in interest.
This will apply to individual borrowers and any loans that are “secured by a mortgage and are made for financing, including refinancing of existing mortgage obligations, to create or preserve the long-term affordability of a residential structure in the state, or a buy-down mortgage loan secured by a mortgage, of an owner-occupied unit in this state.”
The Act will permit borrowers to request a forbearance with no additional documentation other than an attestation that the borrower experienced financial hardship due to the wildfires. Servicers must approve the forbearance for the amount and time the borrower requests and ensure that borrowers understand that the missed payments must be repaid, although they may be paid back over time.
The proposed bill also prohibits servicers from initiating any judicial or non-judicial foreclosure process, executing a foreclosure-related sale or eviction, moving for an order of sale or foreclosure judgment, or continuing any foreclosure proceedings for homeowners in wildfire disaster zones.
How AB 238 Will Affect Your Business: Next Steps
As of March 13, 2025, AB 238 remains under review. If the bill passes, it will take effect immediately, and a lender’s ability to foreclose on an individual borrower located in Los Angeles County may be impacted for up to 360 days from the date of the forbearance request.
The Geraci LLP team is closely monitoring the bill and will provide any updates as they unfold. We strongly recommend California lenders stay proactive, keep up-to-date on any legislative action in the state, and reach out to us to help you prepare a strategy before initiating or continuing any foreclosure-related activities. Our monthly newsletter provides the latest legislative and industry updates nationwide, click here to sign up now.
Legal Update: March 28, 2025
On March 14, 2025, the California Assembly made several revisions to AB 238, clarifying borrower eligibility and compliance requirements. If the bill is passed, these changes will take effect immediately. Read all about the latest revisions below.
Borrower Eligibility
- Consumer borrowers and borrowers with 10 or fewer investment properties are considered eligible under AB 238.
- The borrower must affirm, under penalty of perjury, that they have experienced financial hardship during the January wildfires to be eligible for this extension.
Compliance Requirements
- Borrowers are permitted to provide minimal documentation of financial hardship within the first 180 days, however, following the 180 period they must provide documentation of ongoing financial hardship to extend the forbearance period.
- Following the 180 days, lenders must conduct regular check-ins with the borrower every 90 days to extend the period of forbearance.
- Lenders are prohibited from selling the borrower’s properties or requiring a lump sum payment a the end of the forbearance period.
- Lenders are prohibited from negatively impacting a borrower’s credit score, or submitting reports that could damage the borrower’s credit, during the forbearance period.
- If a borrower was granted a period of forbearance by the lender before the bill was enacted, that time will be applied to their forbearance period following the enactment of AB 238.
As of March 20th, 2025, the bill is still in assembly and is in the final stages of review. To stay informed on additional changes or updates to this bill, subscribe to our newsletter today.
