Effective July 1, 2025 a new law went into effect impacting foreclosures of all subordinate (junior) liens on all residential real estate funded for any purpose. The loan applies to all residential loans that were subordinate at the time of the loan origination regardless of the loan's current position.
Please discuss with your attorney the new law and how it affects your foreclosure prior to initiating foreclosure process. The new law establishes a new compliance requirement of the servicer or lender (on behalf of all prior servicers or lenders) with the initiation of foreclosure. The servicer (or lender as servicer if the loan is serviced by the lender) must sign under penalty of perjury a Certification of Compliance stating there has not been any unlawful practice during the life of the loan.
As used in this section: (1) “Borrower” has the same meaning as defined in Section 2929.5. (2) “Mortgage servicer” includes the current mortgage servicer and any prior mortgage servicers. (3) “Subordinate mortgage” means a security instrument in residential real property, including a deed of trust and any security instrument that functions in the form of a mortgage, that was, at the time it was recorded, subordinate to another security interest encumbering the same residential real property.
The following conduct constitutes an unlawful practice in connection with a subordinate mortgage:
(1) The mortgage servicer did not provide the borrower with any written communication regarding the loan secured by the mortgage for at least three years.
(2) The mortgage servicer failed to provide a transfer of loan servicing notice to the borrower when required to provide that notice by law.
(3) The mortgage servicer failed to provide a transfer of loan ownership notice to the borrower when required to provide that notice by law.
(4) The mortgage servicer conducted or threatened to conduct a foreclosure sale after providing a form to the borrower indicating that the debt had been written off or discharged, including, but not limited to, an Internal Revenue Service Form 1099.
(5) The mortgage servicer conducted or threatened to conduct a foreclosure sale after the applicable statute of limitations expired.
(6) The mortgage servicer failed to provide a periodic account statement to the borrower when required to provide that statement by law, including, but not limited to, the federal Truth in Lending Act, as amended (15 U.S.C. 1601, et seq.), and investor or guarantor requirements.
(c) A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not conduct or threaten to conduct a nonjudicial foreclosure until the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent does both of the following: (1) Simultaneously with the recording of a notice of default, records or causes to be recorded, in the office of the county recorder of the county that the encumbered property is located, a certification under penalty of perjury that either:
(A) The mortgage servicer did not engage in an unlawful practice as described in subdivision (b).
(B) The mortgage servicer lists all instances when it committed an unlawful practice as described in subdivision (b).
(2) Simultaneously with the service of a recorded notice of default, sends both of the following documents to the borrower by United States certified mail with return receipt requested to the last known mailing address of the borrower: (A) A notice providing that if the borrower believes the mortgage servicer engaged in an unlawful practice described in subdivision (b) or misrepresented its compliance history, the borrower may petition the court for relief before the foreclosure sale. (B) A copy of the certification recorded pursuant to paragraph (1).
(d) Upon a borrower’s petition to the court for relief before the foreclosure sale, the court shall enjoin a proposed foreclosure sale pursuant to a power of sale in a subordinate mortgage until a final determination on the petition has been made.
(e) It shall be an affirmative defense in a judicial foreclosure proceeding if the court finds the mortgage servicer engaged in any of the unlawful practices specified in subdivision (b).
(f) The court may provide equitable remedies that the court deems appropriate, depending on the extent and severity of the mortgage servicer’s violations. The equitable remedies may include, but are not limited to, striking all or a portion of the arrears claim, barring foreclosure, or permitting foreclosure subject to future compliance and corrected arrearage claim.
(g) A borrower may also petition the court to set a nonjudicial foreclosure sale aside when a certification required by subdivision (c) was never recorded or when a certification recorded pursuant to subdivision (c) indicates that the mortgage servicer engaged in an unlawful practice described in subdivision (b) or misrepresented its compliance history.
The Lender/Servicer provided Certification of Compliance will be recorded concurrently with the Notice of Default. The servicer (or lender if self serviced) will immediately send a certified, return receipt notification letter to the borrower informing the borrower of their right to petition the court to stop the foreclosure along with the copy of the signed Certification of Compliance.
Before initiating foreclosure, you must provide the title insurance policy received at loan origination or certify the lien position of your lien at time of the loan origination. You will want to review the provisions of the new law with your attorney and how it affects your loan prior to initiating foreclosure.
