There has been a significant development in Sacramento affecting credit unions involved in mortgage lending throughout California. Assembly Bill 130, a budget trailer bill, has been signed into law and includes a troubling provision that poses serious challenges for mortgage servicers.

Section 2 of Assembly Bill 130 introduces new requirements that will make it extremely difficult to foreclose on subordinate mortgages. Specifically, it mandates that mortgage servicers certify — under penalty of perjury — whether the current and all prior servicers have engaged in any “unlawful practices” as defined in the bill.

This provision was inserted into AB 130 as part of the state budget process, allowing it to bypass the traditional legislative committee hearings. As a result, it was signed into law much faster than standard policy bills, with limited opportunity for stakeholder input or amendment.

Since the trailer bill was released on June 25, the California Credit Union League has been actively opposing this “zombie mortgage” language. Alongside other industry associations, the League has been advocating against this provision in both the budget process and in the parallel legislative effort, Senate Bill 681 (Wahab). You can view the SB 681 opposition letter here.

Despite coordinated efforts to remove the language from AB 130, the provision was enacted.

The League is now exploring options. The implications for your credit union’s ability to manage and service subordinate mortgages are significant.

Additionally, the League recognizes the operational and risk management challenges this new law presents and is committed to keeping you informed.

For a detailed breakdown of AB 130 and its potential impact, please see the League’s full analysis here.

The League will continue to monitor developments closely and provide timely updates as the situation evolves.