Thefocus of our discussion is on a crucial aspect of property ownership: mortgages and foreclosures. A significant bill, enacted into law on September 20, 2024, has brought about substantial changes. This act has amended Sections 2923. 5, 2923. 55, and 2924f of the Civil Code, and added Section 2932. 2 to the Civil Code, all aboutreal property.

This bill has significantly altered the traditional statutory procedure that California has been following for decades. The process, as it historically stood, involved notifying a borrower, filing a notice of default, waiting 90 days, and then filing a notice of sale. A sale would then be held at the courthouse steps twenty-one days later, and a title insurance policy would be obtained for the conveyance of the property from the trustee's sale. The statutory procedure kept the process out of the hands of the judicial court system, which is often a quagmire of uncertainty and questionable outcomes, operating outside the confines of strict law compliance.

A similar law, AB 1079, misappropriates protective equity from real property lenders during the foreclosure procedure for 1-4 units, mandated by the government.

Combine this monstrosity with AB 2424, which was recently passed into law, and we get a double whammy of property rights violations and erosion of protective equity rights by real property lenders.

An article on AB 1079 is contained on my website. In the search engine, type in AB 1079.

Article:

AB 2424, the latest blow to private property rights, significantly alters the traditional foreclosure process. This 'monster law' not only extends the foreclosure period but also introduces key changes. These changes, including increased uncertainty and potential for fraud, could lead to a decline in investor confidence and a slowdown in the real estate market, affecting not only property owners and lenders but also the broader economy. The implications of this law are grave, and all stakeholders must understand its impact.

Bill Text - AB 2424 Mortgages: Foreclosure.

Control, torpedo, and destroy; man the ship ahead is the motto.

So, who does this bill affect? The implications of this bill are significant for property owners, lenders, beneficiaries, mortgage servicers, and foreclosure trustees. It raises serious concerns about the future of property ownership and lending in California, particularly for property owners who may face risks to their rights and stability.

When defaulting borrowers benefit, everyone else loses. The new procedure allows for multiple extensions, creating fertile ground for potential fraud without consequence a situation that should raise serious concerns among property owners, lenders, and the public, and make them vigilant of the possible risks. The potential for fraud poses a significant threat, and all parties must remain vigilant.

Section 2923. 5 of the Civil Code is amended:

The key provisions include:

Notification of the right to obtain third-party assistance, including counseling by HUD-approved personnel.

Postponement of foreclosure sale for 45 days if the defaulting property lists the property for sale five business days before the scheduled sale.

Further postponement of another 45 days if the defaulting borrower presents the foreclosure trustee with an offer to purchase five business days before the next scheduled sale.

The requirements of postponements are contingent on the defaulting borrower providing the necessary documentation, listing agreement, and/or purchase agreement to the trustee within the specified time.

There is no mechanism to verify whether the listing agreement or purchase agreement is factual or fabricated.

Another postponement: The mortgagee, beneficiary, or authorized agent must provide the foreclosure trustee with the fair market value at least 10 days before the initial scheduled sale. The trustee is prohibited from selling the property if the bid price is less than 67% of the disclosed fair market value. The trustee is required to postpone the foreclosure sale for at least 7 days and then sell the property to the highest bidder.

Along the way, the defaulting borrower may choose to file a summary adjudication in front of a judge as a delay tactic. An Example is that the market value delineated by the mortgagee, beneficiary, or authorized agent may be undervalued. The defaulting borrower may think the fair market value should be higher.

After all the time delays and wrangling possibilities allowed by this new law, the defaulting borrower could still, at the last minute, file a Chapter 13, 11, or 7 bankruptcy, which may delay the process by another six months or more.

Each delay tactic requires the lender/beneficiaries to hire a lawyer at $ 400 or more to respond to the wrangle, file appropriate defense motions in court, sit in an overcrowded courtroom, and wait through other unrelated proceedings to present their defense case. Multiple visits to the courtroom can be expected, as judges are rarely in a hurry and typically give consumers the benefit of the doubt. A quick $25,000 bill can be racked up in a flurry before the issue is solved and the process is brought back in line with the prescribed law. The financial burden on lenders issubstantial, and it is a pressing issue that requires attention.

Upon discovery of the default, the servicer must advise the borrower that they have the right to request a meeting within 14 days to discuss their financial situation and explore options. This requirement is intended to ensure that borrowers are fully informed about their rights and potential solutions, thereby reducing the likelihood of foreclosure. The borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting can be held telephonically if you don't mind.

(B) The mortgage servicer shall notify the borrower during the initial contact required under subparagraph (A) 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 under the process described in Section 2924b and that obtaining a copy of these documents may allow the third party to assist the borrower in avoiding foreclosure.

(b) A notice of default recorded under Section 2924 shall include a declaration that the mortgage servicer has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was needed because the individual did not meet the definition of "borrower" according to subdivision (c) of Section 2920. 5.

The mortgage servicer, who is responsible for managing the loan, shall attempt to contact the borrower by first-class mail, make three calls, and then send a certified letter with a return receipt requested.

AB 2424 introduces a 30-day waiting period before a notice of default can be filed. This period is designed to give the borrower more time to explore options and avoid foreclosure of the lien. However, it also means a more extended period of uncertainty for lenders and investors, which may impact their financial planning and decision-making.

NOTICE TO POTENTIAL BIDDERS: If you are considering bidding on this property lien, you should understand that there are risks involved in bidding at a trustee auction. This bill has significantly increased the risk for investors, as you will be bidding on a lien, not on the property itself. Placing the highest bid at a trustee auction does not automatically entitle you to free and clear ownership of the property. You should also be aware that the lien being auctioned off may be a junior lien. Would you be the highest bidder at the auction? In that case, you may be responsible for paying off all liens senior to the lien being auctioned off before you can receive a clear title to the property; this increased risk warrants caution and further investigation for investors.

NOTICE TO PROPERTY OWNER:The sale date shown on this notice of sale may be postponed one or more times by the mortgagee, beneficiary, trustee, or a court, under Section 2924g of the California Civil Code. The law requires that information about trustee sale postponements be made available to you and the public, as a courtesy to those not present at the sale. If you wish to learn whether your sale date has been postponed, and, if applicable, the rescheduled time and date for the sale of this property, you may call [telephone number for information regarding the trustee's sale] or visit this internet website [internet website address for information regarding the sale of this property], using the file number assigned to this case [case file number]. Information about postponements that are very short in duration or occur close in time to the scheduled sale may not be immediately reflected in the telephone information or on the website. The best way to verify postponement information is to attend the scheduled sale.

NOTICE TO TENANT: You may have a right to purchase this property after the trustee auction under Section 2924m of the California Civil Code. If you are an "eligible tenant buyer," you can buy the property if you match the last and highest bid placed at the trustee auction. If you are an "eligible bidder," you may be able to purchase the property if you exceed the last and highest bid placed at the trustee auction. There are three steps to exercising this right of purchase. First, 48 hours after the date of the trustee sale, you can call [telephone number for information regarding the trustee's sale], or visit this internet website [internet website address for information regarding the sale of this property], using the file number assigned to this case [case file number] to find the date on which the trustee's sale was held, the amount of the last and highest bid, and the address of the trustee. Second, you must send a written notice of intent to place a bid so that the trustee receives it no more than 15 days after the trustee's sale. Third, you must submit a bid so that the trustee gets it within 45 days after the trustee's sale. If youbelieve you may qualify as an "eligible tenant buyer" or "eligible bidder," you should consult an attorney or a qualified real estate professional immediately for advice onthis potential right to purchase.

The bottom line is that the borrower has multiple options to postpone foreclosure, in various forms, including using a straw buyer, whether real or not, and manipulating the process to delay it for up to a year or more. What used to be a 120-day process is now a 360-day process, or more. All that time, the borrower can live in the property without making any payments, simply by manipulating the system.

The lender must pay the cost to respond to the manipulation, using extremely competent foreclosure trustees and attorneys. Additionally, the lender may be required to pay for forced order insurance coverage, property taxes, exterior maintenance, and association dues. The process could eat up 10% to 20% of the equity.

Many income property purchasers will find that investing in single-family homes is not worth the risk, especially those with one to four units. Many lenders will reduce their loan-to-value ratios by 5% to 10% to compensate for the new dangers.

For mortgage lenders who fail to acknowledge this new law, they are sleepwalking into a trap, facing blame and consequences from the borrower, as well as a breach of fiduciary duty from the private beneficiaries. You should have known but failed to inform me about the new risks, which constitutes a form of constructive fraud.

This new law is riddled with pitfalls for lenders and presents an open invitation for fraud and abuse of the judicial system by defaulting borrowers. This monstrosity is a game changer when lending on single-family and 1- to 4-unit residential properties.

This bill also resurrects the past monster ghost, SB 1079, which gives specific subsets of real estate purchasers (tenants and non-profit organizations) preference over other subsets. In California, when you think regulations cannot get any more onerous, watch out it does.