As California’s foreclosure landscape evolves, junior lienholders must navigate new regulatory changes to protect their interests. Assembly Bill 130 (AB 130), effective as of July 1, 2025, introduces significant compliance requirements, particularly impacting junior mortgages and subordinate liens. These changes are designed to prevent “zombie mortgages” but may inadvertently expose junior lienholders to potential legal risks.
The Core of AB 130: What Junior Lienholders Need to Know
AB 130 enacts California Civil Code Section 2924.13, which imposes new requirements on mortgage servicers before initiating or threatening foreclosure on residential subordinate mortgages. These include:
- Certificate of Compliance: Before initiating foreclosure, servicers must record a Certificate of Compliance, attesting that the servicer has not engaged in unlawful practices related to the loan.
- Notices to Borrowers: The servicer must mail the certificate and a notice to the borrower’s last known address via certified mail.
Failure to comply with these requirements can result in significant consequences, including the possibility of foreclosure being set aside if the Certificate of Compliance is proven to be false or incomplete.
What Is a “Zombie Mortgage”?
A “zombie mortgage” refers to a situation in which a borrower is left in a state of foreclosure limbo. In these cases, junior lienholders may continue to hold a claim on the property even after the senior liens are foreclosed upon. The introduction of AB 130 aims to mitigate these situations by requiring more stringent oversight and compliance for junior mortgages, ensuring that the foreclosure process is transparent and properly documented.
The Compliance Checklist: How Junior Lienholders Can Protect Themselves
Junior lienholders must ensure they are compliant with AB 130 to avoid the risks associated with “zombie mortgages.” Key compliance triggers include:
- Three-Year Communication Silence: Servicers must ensure they have not been silent on the loan for more than three years.
- Notices of Servicing and Ownership Changes: All notices related to servicing transfers or ownership changes must be documented and sent as required by law.
- No Foreclosure Without Written Consent: Junior lienholders must obtain prior written consent before initiating foreclosure proceedings.
Failure to meet these compliance requirements could render a foreclosure unenforceable, leaving junior lienholders with a lien that is difficult to enforce.
What Junior Lienholders Can Do
- Review and update all subordinate liens to ensure they are compliant with AB 130.
- Ensure accurate records of all required notices and communications with borrowers.
- Consult with a legal professional to assess how these changes might impact their portfolio and formulate strategies for compliance.
By staying proactive, junior lienholders can protect their interests, comply with AB 130, and avoid the risks of zombie mortgages.
Protect Your Junior Liens with Peak Foreclosure Services
Stay ahead of AB 130 and ensure your junior liens are fully compliant. At Peak Foreclosure Services, we specialize in helping junior lienholders navigate these regulatory changes. Contact us today to learn more about how we can help protect your interests and avoid the risks of zombie mortgages.
Have questions?
If you or someone you know has questions about the current foreclosure climate, we’d be happy to answer your questions:
kellie@peakforeclosure.com
(818) 591-9237
