By Anthony Geraci, Esq. | Founder, Geraci LLP Published: March 2025 | Last Updated: March 28, 2025
The devastating wildfires that swept through Los Angeles County in January 2025 prompted immediate legislative response aimed at providing financial relief to affected homeowners. Assembly Bill 238 (AB 238), known as the Mortgage Deferment Act, represents California’s most significant wildfire-related lending legislation in years, proposing mandatory forbearance periods and foreclosure moratoriums for borrowers in disaster-declared areas.
For private lenders with loan portfolios secured by Los Angeles County real estate, AB 238 creates substantial operational and financial implications if enacted. The legislation would mandate forbearance approvals, suspend foreclosure proceedings, require ongoing borrower monitoring, and potentially delay collections for up to 360 days—all while preventing lenders from reporting payment defaults to credit bureaus or requiring lump-sum repayment upon forbearance expiration.
This analysis examines AB 238’s current provisions as of March 28, 2025, assesses impact on private lending operations, and provides strategic guidance for lenders navigating the bill’s requirements if enacted into law.
AB 238 Legislative History and Current Status
Initial Introduction: January 2025 Wildfire Response
The Palisades and Eaton fires, which ignited in early January 2025, destroyed over 12,000 structures across Los Angeles County, displacing tens of thousands of residents and causing estimated damages exceeding $150 billion. The fires particularly impacted Pacific Palisades, Altadena, Malibu, and surrounding communities, creating one of California’s most destructive wildfire events in recorded history.
In the immediate aftermath, California legislators introduced Assembly Bill 238 on January 23, 2025, seeking to provide rapid financial relief to wildfire victims facing mortgage payment obligations while their homes lay destroyed and insurance claims remained pending.
The bill’s sponsors argued that without legislative intervention, wildfire victims would face foreclosure during reconstruction periods, compounding tragedy with financial ruin. Proponents cited the months or years often required for insurance settlements, permitting approvals, and rebuilding, during which borrowers cannot generate rental income from destroyed properties or afford dual housing and mortgage expenses.
March 14, 2025 Amendments
Following initial committee review and stakeholder feedback from lending industry representatives, consumer advocacy groups, and municipal officials, the California Assembly adopted substantial amendments to AB 238 on March 14, 2025.
These revisions addressed several concerns raised during initial hearings:
Current Legislative Status (March 2025)
As of March 28, 2025, AB 238 has passed the California Assembly and awaits Senate consideration. The bill enjoys substantial political support given the high-profile nature of the January 2025 fires and broad public sympathy for wildfire victims.
Industry observers anticipate Senate passage, likely with additional technical amendments, followed by Governor signature. If enacted, the legislation would take effect immediately as emergency legislation, applying retroactively to any forbearances granted since January 2025.
Key Provisions: What AB 238 Requires
Understanding AB 238’s specific mandates is essential for lenders evaluating compliance obligations and operational impact.
Covered Loans and Borrower Eligibility
- Traditional purchase money mortgages on 1-4 unit owner-occupied properties
- Refinances of existing residential mortgages
- Home equity lines of credit (HELOCs) secured by owner-occupied residences
- Investment property loans (if borrower owns 10 or fewer investment properties)
- Large-scale commercial real estate loans
- Loans to corporate borrowers or institutional investors
- Loans to individuals or entities owning more than 10 investment properties
- Business-purpose loans on non-residential properties
Mandatory Forbearance Approval Process
AB 238 fundamentally alters the voluntary nature of forbearance agreements, converting them from discretionary lender accommodations to mandatory borrower rights:
- Attestation of ongoing financial hardship
- Documentation substantiating continued hardship (insurance claim status, rebuilding timelines, employment disruption)
- 90-day lender check-ins verifying hardship continuation
Foreclosure Moratorium Provisions
For the duration of approved forbearances, AB 238 prohibits lenders from:
The foreclosure moratorium operates as an absolute bar during forbearance periods, not a mere stayed process that can proceed after notice. Lenders must halt all foreclosure-related activity immediately upon receiving qualifying forbearance requests.
Repayment Structure Limitations
AB 238 imposes two critical limitations on post-forbearance repayment:
Credit Reporting Restrictions
One of AB 238’s most significant lender limitations involves credit reporting:
These provisions create practical challenges: how do lenders accurately report loan status without triggering credit score impacts? How are subsequent lenders (if properties are refinanced) informed of forbearance histories? The statute provides limited guidance on these operational questions.
Retroactive Application
For borrowers who received voluntary forbearances from lenders before AB 238’s enactment, those forbearance periods count toward the 360-day maximum. This prevents borrowers from receiving voluntary forbearances plus full statutory forbearances, extending total forbearance beyond legislative intent.
However, this raises questions about borrowers who exhausted voluntary forbearances before AB 238 passed—do they still qualify for statutory forbearances, or were voluntary accommodations substitutes for statutory rights?
Impact Analysis for Private Lenders
If AB 238 becomes law, private lenders face multiple operational and financial implications requiring immediate attention.
Portfolio Exposure Assessment
Lenders should immediately analyze portfolio exposure:
Cash Flow and Liquidity Implications
Mandatory forbearances create immediate cash flow disruptions:
Operational and Compliance Burdens
AB 238 creates new administrative obligations:
Strategic Response Considerations
Lenders should evaluate several strategic responses:
Legal Uncertainties and Ambiguities
Several AB 238 provisions contain ambiguities creating compliance uncertainties:
These ambiguities will likely require regulatory guidance, court interpretation, or legislative clarification before lenders achieve full compliance certainty.
Practical Compliance Recommendations
While AB 238 remains pending as of March 2025, prudent lenders should prepare for likely enactment:
Immediate Actions
Ongoing Monitoring
Conclusion: Preparing for California’s Wildfire Lending Environment
AB 238 represents California’s aggressive response to the January 2025 LA County wildfires, prioritizing borrower protection and financial stability for wildfire victims over lender collection rights and contractual enforcement. If enacted, the legislation will fundamentally alter foreclosure timelines, payment collection procedures, and borrower communication obligations for affected loans.
Private lenders with California exposure—particularly Los Angeles County portfolios—must prepare for AB 238’s requirements regardless of personal views on the legislation’s merits or concerns about precedent for future wildfire responses. Compliance preparation, operational adaptation, and strategic loss mitigation planning position lenders to navigate AB 238’s mandates while preserving portfolio value and maintaining investor confidence.
The broader implication extends beyond AB 238 itself: California’s willingness to impose mandatory forbearances and foreclosure moratoriums in disaster contexts signals potential for similar legislative responses to future wildfires, earthquakes, floods, or other natural disasters. Lenders operating in California should view AB 238 not as isolated wildfire response but as template for California’s approach to disaster-related lending regulation.
For guidance on AB 238 compliance, forbearance documentation, repayment plan structuring, or foreclosure suspension management, contact Geraci LLP’s Banking and Finance team. Our attorneys counsel California lenders on compliance with evolving state lending regulations and represent lenders in disputes arising from regulatory requirements.
About the Author: Anthony Geraci is the founder of Geraci LLP, a law firm specializing in private lending, fund formation, and regulatory compliance for the real estate finance industry. With over 15 years of experience counseling California private lenders, Anthony provides strategic guidance navigating California’s complex and frequently changing lending regulatory landscape.
Geraci LLP provides comprehensive services for California lenders including regulatory compliance analysis, disaster forbearance program implementation, loan modification structuring, and foreclosure procedure guidance. The firm serves clients nationwide from offices in California and Arizona.
