New Disclosure And Notification Mandates For Residential Lenders
Legislative Overview
On September 20, 2024, California enacted AB 2424 (Mortgages, Foreclosure), establishing new foreclosure notice and disclosure requirements affecting one-to-four unit residential properties. The legislation takes effect January 1, 2025, and impacts California lenders throughout the loan lifecycle—from origination through foreclosure proceedings.
Loan Origination Disclosure Requirements
Request For Notice DisclosureAB 2424 mandates that lenders provide borrowers with disclosure explaining third-party rights to receive foreclosure notices. Specifically, borrowers must be informed that third parties may record requests to receive copies of Notices of Default and Notices of Sale during foreclosure proceedings.
While junior lienholders commonly record such requests within their Deeds of Trust, the statute permits any interested party to record notice requests. Lenders must provide this Request for Notice Disclosure at or before loan closing, executed prior to other loan documentation.
Pre-Foreclosure Notification Requirements
Enhanced Initial Contact DisclosuresCalifornia Civil Code Section 2923.5(a)(2)(b), as amended by AB 2424, requires foreclosing lenders to provide specific disclosures during initial borrower contact. Lenders must inform borrowers 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.”
Scope Of ApplicationThese notification requirements apply exclusively to loans subject to AB 3088’s Homeowner Bill of Rights (HBOR) compliance framework. Lenders whose loans fall outside AB 3088’s scope are not required to provide these enhanced notifications.
Lenders and servicers should implement systems ensuring initial contact scripts and documentation include the required disclosure language, with appropriate follow-up procedures to verify compliance.
Foreclosure Sale Requirements
Fair Market Value Appraisal MandateFor foreclosure sales scheduled on or after January 1, 2025, AB 2424 imposes new Fair Market Value (FMV) appraisal requirements for loans secured by one-to-four unit residential properties.
– Lenders or servicers must provide foreclosure trustees with property FMV estimates at least 10 days before scheduled sale dates – FMV estimates must be current within six months of the initially scheduled sale date – Acceptable valuation methods include: – Broker Price Opinions (BPOs) – Automated Valuation Models (AVMs) – Full appraisals – Comparative Market Analyses (CMAs)
Modified Bidding ProcessAB 2424 establishes a bifurcated bidding process based on loan-to-value ratios:
When outstanding loan balance equals or exceeds 67% of FMV: – Standard foreclosure sale procedures apply – No modifications to bidding process required
When outstanding loan balance is less than 67% of FMV: – Trustee must first offer property at 67% of FMV – If no bids are received, trustee must postpone sale for minimum seven days – After postponement, trustee may sell property for outstanding loan amount
This mechanism aims to maximize recovery for borrowers when significant equity exists in foreclosed properties.
Sale Postponement For Active ListingsAB 2424 creates mandatory postponement provisions when properties are actively marketed:
Then the trustee must postpone the sale for 45 days.
Then the trustee must postpone the sale for an additional 45 days.
Strategic Implications For Lenders
Documentation Updates RequiredLenders must review and update: 1. Loan origination disclosure packages to include Request for Notice Disclosure 2. Initial borrower contact scripts and procedures for foreclosure matters 3. Foreclosure trustee instructions to address FMV requirements and postponement protocols
Servicer CoordinationLenders employing third-party servicers should: – Verify servicers understand and will comply with new disclosure requirements – Confirm servicers’ procedures for obtaining and providing FMV estimates – Establish protocols for tracking and responding to listing agreements and purchase contracts during foreclosure
Timeline AdjustmentsLenders should anticipate extended foreclosure timelines when: – Outstanding loan balances fall below 67% of property FMV – Borrowers actively market properties during foreclosure proceedings
Compliance Guidance
Lenders navigating AB 2424 compliance should:
1. Review Existing Loan Documentation: Ensure all California residential loan documentation includes the Request for Notice Disclosure
2. Update Foreclosure Procedures: Implement systems for obtaining FMV estimates and tracking postponement triggers
3. Train Staff: Educate loan origination and servicing personnel on new requirements
4. Consult Legal Counsel: Engage experienced California lending counsel before initiating foreclosure proceedings on affected properties
About Geraci LLP
Geraci LLP’s compliance team provides comprehensive guidance on California lending regulations, including AB 2424 implementation strategies. Our attorneys assist lenders with documentation updates, foreclosure procedures, and regulatory compliance across all 50 states.
