The January 2025 wildfires that devastated Los Angeles County prompted California lawmakers to introduce Assembly Bill 238 (AB 238), also referred to as the Mortgage Deferment Act. This legislation represents one of the most significant regulatory developments affecting California lenders in recent years, establishing a framework for mandatory mortgage forbearance tied to wildfire-related financial hardship.
For private lenders operating in California, understanding the scope and mechanics of AB 238 is essential for maintaining compliance and adjusting foreclosure timelines accordingly.
Overview of the Mortgage Deferment Act
AB 238 was introduced to provide financial relief to borrowers whose homes or livelihoods were impacted by the LA County wildfires. The legislation creates a structured forbearance program that allows affected borrowers to pause mortgage payments while they process insurance claims and begin rebuilding efforts.
The core mechanism of the bill permits borrowers to request a total forbearance period of up to 360 days, structured as follows:
- Initial forbearance period: Up to 180 days upon borrower request
- Extension period: An additional 180 days if requested by the borrower
Under the Act, “borrower” is defined broadly to include any natural person who is a mortgagor, trustor, confirmed successor in interest, or an individual holding power of attorney for such persons.
Loan Types Subject to AB 238
The legislation applies to loans secured by a mortgage that were made for financing or refinancing existing mortgage obligations to create or preserve the long-term affordability of a residential structure in California. This includes buy-down mortgage loans secured by a mortgage on an owner-occupied unit in the state.
Private lenders should carefully evaluate their California residential loan portfolios to determine which loans fall within the scope of AB 238.
Forbearance Request and Approval Process
One of the most consequential provisions of AB 238 is the streamlined approval process for forbearance requests. The bill requires lenders and servicers to approve forbearance based solely on the borrower’s attestation of wildfire-related financial hardship. No additional documentation is required at the initial request stage.
Servicers are further required to ensure that borrowers understand the repayment obligation — that deferred payments must ultimately be repaid, though repayment may be structured over time rather than as a lump sum.
Foreclosure Restrictions Under AB 238
The Act imposes a broad moratorium on foreclosure-related activities for borrowers in wildfire disaster zones. Specifically, servicers and lenders are prohibited from:
- Initiating judicial or non-judicial foreclosure proceedings
- Executing foreclosure-related sales or evictions
- Moving for orders of sale or foreclosure judgments
- Continuing any pending foreclosure proceedings
These restrictions apply for the duration of the forbearance period, which may extend up to 360 days from the date of the initial request.
March 2025 Amendments: Key Revisions
On March 14, 2025, the California Assembly adopted several important amendments to AB 238 that clarified eligibility criteria and compliance obligations.
Updated Borrower Eligibility
- Consumer borrowers and borrowers holding 10 or fewer investment properties are eligible under the revised bill
- Borrowers must affirm, under penalty of perjury, that they experienced financial hardship during the January wildfires
Enhanced Compliance Requirements
The amendments introduced more detailed compliance obligations for lenders:
- First 180 days: Borrowers may provide minimal documentation of financial hardship
- After 180 days: Borrowers must submit documentation of ongoing financial hardship to extend the forbearance period
- Lender check-ins: Lenders must conduct regular check-ins with borrowers every 90 days to evaluate whether the forbearance extension remains appropriate
- No forced sale: Lenders are prohibited from selling the borrower’s property during the forbearance period
- No lump-sum repayment: Lenders cannot require a lump-sum payment at the conclusion of the forbearance period
- Credit reporting protections: Lenders are prohibited from negatively impacting a borrower’s credit score or submitting adverse credit reports during the forbearance period
Retroactive Application
If a borrower was granted a period of forbearance by the lender before the bill’s enactment, that time counts toward the total forbearance period under AB 238. Lenders should review any existing forbearance arrangements with LA County borrowers to assess how this retroactive provision affects their timelines.
Strategic Implications for Private Lenders
AB 238 has several practical consequences that private lenders should incorporate into their operational planning:
Portfolio impact assessment. Lenders with exposure to LA County residential properties should identify all potentially affected loans and model the cash flow impact of up to 360 days of deferred payments.
Foreclosure timeline adjustments. Any pending or planned foreclosure actions on properties in designated wildfire disaster zones must be paused. Lenders should update their servicing calendars and communicate adjusted timelines to investors and stakeholders.
Compliance infrastructure. The 90-day check-in requirement and documentation obligations after the initial 180-day period create ongoing compliance tasks that must be tracked and executed systematically.
Investor communications. Fund managers and lenders who have sold participations or whole loans should proactively communicate with investors about the potential impact of AB 238 on distributions and recovery timelines.
How Geraci LLP Can Help
The regulatory landscape for California lenders continues to evolve in response to the wildfire disaster. Geraci LLP’s lending compliance team is actively monitoring AB 238 and related legislative developments to help private lenders stay ahead of their compliance obligations.
Whether you need assistance evaluating how AB 238 affects your loan portfolio, adjusting your foreclosure strategy, or building a compliance framework for wildfire-related forbearance requests, our attorneys are prepared to help.
Contact Geraci LLP at (949) 403-3488 or visit us at 90 Discovery, Irvine, CA 92618 to discuss your California lending operations.
