AB 2424: California Foreclosure Requirements Every Private Lender Must Understand

Anthony Geraci

Founder & CEO

California’s legislative landscape for private lending shifted significantly when Governor Newsom signed AB 2424 into law on September 20, 2024. Effective January 1, 2025, this legislation introduces new foreclosure notice obligations, appraisal requirements, and sale postponement rules that directly impact lenders originating or servicing loans secured by 1-to-4 unit residential properties. Whether you are a private lender, mortgage fund manager, or loan servicer operating in California, understanding these changes is essential to maintaining compliance and avoiding costly enforcement actions.

Key Takeaways from AB 2424

Before diving into the specifics, here is a high-level overview of what AB 2424 changes for California lenders:

New origination disclosure requiring borrowers to be informed about third-party rights to receive foreclosure notices
Updated pre-foreclosure contact requirements under Section 2923.5(a)(2)(b) of the California Civil Code
Fair Market Value appraisal obligations that must be delivered to the foreclosure trustee before any scheduled sale
Mandatory sale postponements when a property is actively listed or under a purchase contract

Each of these provisions carries specific compliance timelines and procedural requirements that lenders need to integrate into their existing workflows.

New Disclosure Obligations at Loan Origination

One of the most immediate compliance requirements under AB 2424 affects the loan origination process. Lenders must now include a disclosure informing borrowers that any third party has the right to record a request to receive copies of both the notice of default and the notice of sale filed during foreclosure proceedings.

This right is not new in concept. Junior lienholders have long recorded such requests within their Deeds of Trust. However, AB 2424 formalizes and expands the notification requirement so that borrowers are explicitly aware of this mechanism from the outset.

Practical Compliance Steps for Originators

Include the Request for Notice Disclosure in all loan document packages where at least one property is located in California
The disclosure should be executed before any other loan documents at or before closing
Geraci LLP provides this disclosure as part of its comprehensive loan documentation services for affected transactions

Pre-Foreclosure Contact Requirements Under Section 2923.5(a)(2)(b)

AB 2424 amends Section 2923.5(a)(2)(b) of the California Civil Code to impose additional content requirements during the mandatory pre-foreclosure borrower contact. For qualifying loans, the initial contact with the borrower must now include specific language notifying them 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.

Which Loans Does This Apply To?

An important distinction for private lenders: this enhanced pre-foreclosure disclosure requirement applies only to loans that must also comply with AB 3088 and the Homeowner Bill of Rights (HBOR). If your loan is exempt from AB 3088 compliance, then this particular disclosure obligation does not apply.

What Lenders and Servicers Should Do

Review your pre-foreclosure contact scripts and correspondence templates to incorporate the new required language
Confirm with your servicer that they have updated their initial contact procedures accordingly
Document all initial contacts thoroughly to demonstrate compliance if challenged

Fair Market Value Appraisal Requirements for Foreclosure Sales

For loans currently in foreclosure with a trustee sale date scheduled on or after January 1, 2025, AB 2424 introduces a new valuation requirement for properties secured by 1-to-4 unit residential real estate.

The Core Requirement

The lender or servicer must provide the foreclosure trustee with the Fair Market Value (FMV) of the property no fewer than 10 days before the scheduled sale date. The trustee does not need to receive the underlying appraisal or valuation report itself — only the FMV figure. This valuation must have been completed within 6 months of the initially scheduled sale date.

Acceptable methods for determining FMV include a full appraisal, a broker price opinion, or an automated valuation model, among other recognized valuation approaches.

How FMV Impacts the Bidding Process

The valuation requirement creates a two-tier bidding structure depending on the loan-to-value ratio:

If the loan balance (or opening bid) equals or exceeds 67% of FMV: No change to the standard bidding process. The sale proceeds as usual.
If the loan balance (or opening bid) is less than 67% of FMV: The trustee must first offer the property at 67% of FMV. If no bids are received at that threshold, the trustee must postpone the sale for a minimum of 7 days. After the postponement, the trustee can then offer the property at the standard amount due.

This provision is designed to protect borrower equity in situations where the outstanding loan balance significantly undervalues the property.

Mandatory Sale Postponement Rules

AB 2424 also establishes two distinct scenarios where a foreclosure trustee must postpone a scheduled sale for properties secured by 1-to-4 unit residential real estate.

Postponement for Active Listing

If the trustee receives notice — within 5 days of a scheduled sale date — that at least 5 days before the sale, a listing agreement was in place with a licensed California real estate broker and published on a publicly available platform, the trustee must postpone the sale for 45 days.

Postponement for Purchase Contract

If a sale has already been postponed due to an active listing, and within 5 days of the rescheduled sale date the trustee receives notice that a purchase agreement for the property was executed at least 5 days before that new sale date, the trustee must postpone the sale for an additional 45 days.

Key Limitations

Each postponement type may only be invoked once per foreclosure proceeding
The listing must be with a licensed California broker and published on a publicly available platform
The purchase agreement must be dated at least 5 days prior to the applicable sale date

These provisions give borrowers and their agents a structured window to pursue a private sale, potentially yielding a better outcome for all parties than a trustee sale.

How Geraci LLP Helps California Lenders Navigate AB 2424

Geraci LLP has updated its loan documentation packages to automatically include the new Request for Notice Disclosure for all transactions involving California properties. Our team of experienced private lending attorneys can also assist with:

Loan documentation review to ensure AB 2424 compliance across your California portfolio
Foreclosure file analysis for active cases impacted by the new appraisal and postponement rules
Servicer coordination to verify that pre-foreclosure contact procedures meet updated requirements
Ongoing regulatory monitoring as California continues to evolve its foreclosure framework

If you have questions about how AB 2424 impacts your lending operations or need assistance with active foreclosure files, Geraci LLP is ready to help.