On September 20th, 2024, California lawmakers passed AB 2424 Mortgages, foreclosure (“AB 2424”), a new law focusing on certain foreclosure notices and disclosures to borrowers when working with 1-to-4 family properties in California, among other changes. The new law goes into effect on January 1, 2025, and will affect California lenders during the origination and foreclosure of certain business purpose loans.
Loan Origination
During loan origination, AB 2424 requires lenders to disclose to their borrowers that any third party has the right to receive copies of notices of default and notices of sale that are recorded as part of the foreclosure process. These third parties simply need to record their request for notice. This is commonly done by junior lienholders within their Deed of Trust, but other parties can record this request as well. Geraci will begin providing a new disclosure called Request for Notice Disclosure starting in the new year for these affected document sets.
Pre-Foreclosure
Under the new Section 2923.5(a)(2)(b) of the California Civil Code, during the pre-foreclosure process, foreclosing lenders should be aware that on certain loans the borrower must be notified during their initial contact “that a third party, such as 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 . . . and that receiving a copy of these documents may allow the third party to assist the borrower in avoiding foreclosure.”
Foreclosing lenders should keep these new requirements in mind, to ensure that they, or their servicer, are providing the required disclosure during the initial contact and following up as needed. It is helpful to note that this disclosure requirement affects only those loans that also must comply with AB3088 to provide compliance under HBOR in California. If you do not need to comply with AB3088, then the loan does not need to provide this new notice.
Foreclosure
For loans in foreclosure with a sale date scheduled in the new year, there is a new appraisal valuation requirement for loans secured by 1-4 family properties. The lender or servicer must provide to the foreclosure trustee no less than 10 days before the sale date, the Fair Market Value (“FMV”) of the property via any of the following methods:
| Opinion of a licensed real estate broker |
| Appraisal from a licensed appraiser |
| Value from a commercially utilized automated valuation model |
| Value from a computerized property valuation system (used to derive a real property value) |
The trustee will not need the appraisal/valuation document, only the value. This estimate of the FMV must be made within 6 months of the initially scheduled date of sale. If your loan is at least 67% of the FMV of the property, there will be no change to the bidding process. If the loan (or the amount of the opening bid) is less than 67% of the FMV, the trustee must first offer the property for sale at 67% of the FMV. If no one bids at the sale, the trustee must postpone the sale for no less than 7 days, and then the trustee can sell the property as usual for only the amount due.
There are also two required postponements of the foreclosure sale date for loans secured by 1-4 family properties if the property ends up being listed for sale and a purchase contract is provided. First, if within 5 days of a scheduled sale date the trustee receives notice that at least 5 days before the sale date there is a listing agreement in place for the property with a licensed California broker to be published in a publicly available platform, then the trustee must postpone the sale for 45 days. Second, if a sale has been postponed for this reason, and within 5 days of the new sale date the trustee receives notice that there is a purchase agreement for the property dated at least 5 days prior to the new sale date, then the trustee must postpone the sale for an additional 45 days. In both cases, the sale can only be postponed once.
Conclusion
In sum, lenders working with California 1-to-4 family properties should review their loan documentation to ensure this new disclosure is provided timely to borrowers upfront during the loan origination process as well. The Request for Notice Disclosure can be provided any time at or before closing but should be executed before any other loan documents. Geraci will now automatically include this new disclosure when at least one property is in California. If you have questions about active foreclosure files, we are also able to assist with understanding the new process. As always, your experts at Geraci are here to help, and if you have any questions about the new disclosure requirements or foreclosure rules, we are happy to assist.
