Legal Update: California's Assembly Bill 1158 – Clarifying a Convoluted Statute in the Mortgage Foreclosure Process

California's mortgage foreclosure laws, particularly those governing trustee's sales, have increasingly become a source of complexity and confusion for lenders, borrowers, and investors alike. Assembly Bill 1158 (AB 1158) represents a welcome legislative effort to streamline and clarify these procedures under Civil Code Section 2924m, a statute that has been criticized as “no model of draftsmanship” by jurists analyzing the statute. By refining definitions, timelines, and bidder requirements, AB 1158 aims to address the ambiguities in this ambiguous statute, promoting fairness and efficiency in the foreclosure process. This update provides an overview of the bill, its implications, and practical guidance. As with all our communications, this is for informational purposes only and does not constitute legal advice—consult our firm for advice tailored to your circumstances.

Overview of Assembly Bill 1158

Introduced by Assembly Member Chen, AB 1158 amends Sections 2924d, 2924h, and 2924m of the Civil Code, as well as related sections in the Health and Safety Code. The bill builds on the framework established by Senate Bill 1079 (2020), which added Section 2924m to give certain eligible parties—such as tenants and nonprofits—a post-sale opportunity to match or exceed bids at trustee's sales, with the purported goal of preserving affordable housing and preventing bulk investor purchases. However, Section 2924m has proven to be a convoluted and ambiguous statute, leading to operational challenges for foreclosure trustees and unintended consequences like bankruptcy automatic stay violation exploitation. AB 1158 seeks to rectify these issues by introducing clearer definitions, procedural safeguards, and transparency measures, ultimately simplifying compliance for all parties involved.

Current Legislative Status

As of August 14, 2025, AB 1158 is in progress and was last amended on May 23, 2025. The bill was introduced on February 20, 2025, and referred to the Assembly Committee on Banking and Finance. It has been held under submission in committee, indicating ongoing review and potential for further amendments before advancing to the floor. If passed, the changes would take effect immediately, with Section 2924m set to repeal on January 1, 2031, unless extended. We are monitoring its progress closely, as it could significantly impact foreclosure practices.

Key Provisions

AB 1158 introduces targeted reforms to make Section 2924m more workable and less prone to misinterpretation. Notable changes include:

• Refined Definitions: The bill narrows the definition of "eligible bidder" by excluding prospective owner-occupants and certain eligible nonprofit corporations, focusing instead on legitimate tenant buyers, community land trusts, limited-equity housing cooperatives, and public entities. It also defines "eligible property" as residential real property with four or fewer units that meets specific habitability standards and falls within Federal Housing Administration loan limits. These clarifications aim to further the true intended stated goals of the statute.

• Enhanced Bidding Requirements: Eligible bidders must now include an additional 1.2% of the last and highest bid in their post-sale offers to compensate the original high bidder for holding costs. The bill outlines precise timelines for sale finality—ranging from the next business day to 45 days—depending on whether notices of intent or bids are submitted, with strict delivery methods (e.g., certified mail or overnight delivery).

• Transparency and Enforcement Measures: Trustees are required to post sale details online and via telephone within 48 hours and report final outcomes to the Attorney General for inclusion in a public database. Additionally, the last and highest bidder can sue ineligible parties to invalidate improper bids, with remedies including quiet title, damages, and attorney fees.

  
  

These provisions collectively address the statute's ambiguities, such as unclear bidder qualifications and vague finality determinations, which have complicated trustee's sales since 2021 without a corresponding measurable increase in affordable homeownership opportunities.

Potential Positive Impacts on Lending Practices

By clarifying Section 2924m, AB 1158 could foster a more stable lending environment in California. Lenders may face fewer challenges in completing foreclosures, as refined procedures minimize delays and abuses. This could lead to greater investor confidence, potentially lowering costs associated with prolonged sales and disputes. However, stakeholders should prepare for stricter documentation and reporting obligations, which, while burdensome initially, will ultimately promote transparency and fairness.

Conclusion

Assembly Bill 1158 stands as a constructive step toward demystifying California's convoluted foreclosure bidding laws, offering clarity where ambiguity has long prevailed. By addressing the shortcomings of Section 2924m, this bill could enhance efficiency and equity in the mortgage sector. Our firm is committed to keeping you informed and assisting with compliance strategies. Please reach out to discuss how these developments might affect your operations.