Client Update: Civil Code Section 2924.13
- The Ryan Firm
- Jul 24
- 6 min read
Important Changes to California Junior Lien Foreclosures
Civil Code section 2924.13, which became effective on July 1, 2025, adds yet another piece to the ever-expanding nonjudicial foreclosure process in California. This update is intended to summarize the key provisions of Civil Code section 2924.13, outline its practical implications, and offer our recommendations for compliance and best practices moving forward.
Civil Code section 2924.13 is part of the Legislature’s attempt to strengthen homeowner protections against nonjudicial foreclosure proceedings in California. Section 2924.13 creates new obligations for investors, servicers, and trustees, along with new potential liability in the servicing and foreclosure of junior mortgages. This update summarizes the key aspects of the law.
The New “Unlawful Practices” Under Section 2924.13
Civil Code section 2924.13 sets forth several new “unlawful practices” as applied to the foreclosure of a junior lien. Each purported unlawful practice is set forth and discussed below:
“(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.”
· What appears to be a relatively straightforward requirement is quite complex. On the surface, the new “unlawful practice” is a response to what has been coined a “zombie mortgage,” (i.e., a formerly charged off junior lien that has been dormant for many years). But the drafting of the law creates a problematic scenario for those who hold or service second mortgages.
· First, it should be noted that the statute defines “mortgage servicer” not only as the current mortgage servicer, but also “any prior mortgage servicers.” Taken literally, the statute would allow for a challenge to any foreclosure of a junior mortgage so long as there was any three-year gap in communication during the life of the loan. In other words, even if a mortgage servicer had been presently communicating with a borrower, but a prior servicer did not communicate with the borrower for at least a three-year period, this would constitute an “unlawful practice” which may compromise the nonjudicial foreclosure.
· Second, it creates a significant hardship on the current mortgage servicer. The current servicer must not only certify that it has not committed any unlawful practice, but also that all other prior servicers also did not commit any unlawful practice, regardless of the passage of time. This may be a very cumbersome and onerous task.
(2) The mortgage servicer failed to provide a transfer of loan servicing notice to the borrower when required to provide that notice by law, including, but not limited to, the federal Real Estate Settlement Procedures Act, as amended (12 U.S.C. Sec. 2601 et seq.), and investor or guarantor requirements.
· When the servicing of a residential mortgage loan is sold or transferred, written notice of the change in servicing may be required. Under the federal Real Estate Settlement and Procedures Act (“RESPA”) a transfer of servicing notice is required for any federally related mortgage loan. Under California law, Civil Code section 2937 also requires written correspondence to be sent to the borrower when there is a change in the mortgage servicer.
· Here, the certification required by the statute will require that the current mortgage servicer verify under the penalty of perjury that it and all former mortgage servicers did, in fact, provide the required servicing transfer letters during the life of the loan.
(3) The mortgage servicer failed to provide a transfer of loan ownership notice to the borrower when required to provide that notice 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.
· Similar to above, the federal Truth in Lending Act (“TILA”) requires a written notification be sent to the borrower when a residential mortgage loan (covered by TILA) is sold to a new owner.
· Again, the present mortgage servicer will need to certify under the penalty of perjury whether the prior servicers or loan owners (to the extent applicable), previously sent the required notices.
· What is key to understanding this requirement is whether TILA applies to your loan. Notably, TILA only covers loans made for consumer, household, or family purposes. As such, business purpose loans would be exempt from this requirement.
(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.
· This requirement states that if a loan owner or servicer has previously charged off the loan, that there cannot be a foreclosure thereof. This requirement defies existing law concerning the enforceability of secured debt.
· As a matter of law, “that [a] Second Loan was ‘charged off’ or ‘written of’ . . . does not mean that the loan was extinguished.” (Gonzales v. Specialized Loan Servicing LLC, No. 1:20-CV-0159 AWI BAM, 2020 U.S. Dist. LEXIS 98478, at *12 (E.D. Cal. June 3, 2020).)
· Here, it appears that the Legislature is taking a stand against creditors enforcing previously charged off mortgages.
(5) The mortgage servicer conducted or threatened to conduct a foreclosure sale after the applicable statute of limitations expired.
· This certification is the most problematic. Specifically, the term “applicable statute of limitations” is not defined in the statute. The failure to specify the “applicable statute of limitations” is sure to give rise to borrower abuse. Although, Civil Code section 882.020 provides the outermost time frames for when a power of sale under a deed of trust can be exercised (10 or 60 years depending on certain factors), borrowers are likely to claim that the four-year statute of limitations applies and bars foreclosure for any loan more than four years’ delinquent.
The Mortgage Servicer’s New Obligations Under Section 2924.13
Section 2924.13 sets forth a new certification and notice requirement before conducting or threatening to conduct a nonjudicial foreclosure of a junior lien in California. The process is twofold:
· The first step in the process is to record a certification under the penalty of perjury—simultaneously with the recording of the notice of default—that states that the mortgage servicer “did not engage in an unlawful practice as described [in the statute].”
· The second step in the process is that concurrent with this recorded certification, the mortgage servicer must send the borrower by United States certified mail with return receipt requested to the last known mailing address of the borrower, several other notices.
o One: A notice providing that if the borrower believes the mortgage servicer engaged in an unlawful practice described in the statute or misrepresented its compliance history, the borrower may petition the court for relief before the foreclosure sale.
o Two: a copy of the recorded certification.
The Automatic Injunction Against Foreclosure
This next piece of the statute is unheard of: borrowers receive an automatic injunction against foreclosure by merely filing a petition to challenge the foreclosure. (Civ. Code §2924.13(d).) The specific language of the statute makes clear that “[u]pon 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.”
New Potential Liability
As with all homeowner protection legislation in California, this latest addition to the nonjudicial foreclosure statutes is certain to increase the likelihood of litigation. The new statute ultimately leaves many of the remedies available to the discretion of the judge overseeing a particular case. The statute allows a judge to “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.” (Civ. Code §2924.13(f).) Ultimately, the disposition of a given foreclosure challenge brought under the new statute will be left to the discretion of the trial judge.
Please also note that a completed nonjudicial foreclosure sale may be set aside for failure to comply with the statute.
How to Combat the Effects of the New Law
Our office stands ready to assist industry stakeholders to comply with and navigate the new law.