SACRAMENTO, Calif.–The California Credit Union league has joined with the California Mortgage Association, United Trustees Association and other organizations and individuals in filing a lawsuit challenging portions of Assembly Bill 130 (AB 130) on remedying issues related to a narrow class of abandoned mortgages known as “zombie mortgages.”
The suit argues that AB 130 unconstitutionally impairs existing contracts, strips away established property rights, and violates due process and equal protection, according to the law firm Buchalter, which is representing the league. CMA General Counsel Robert Finlay of Wright, Finlay & Zak is also representing the plaintiffs.
A ”zombie mortgage” is an old, forgotten second mortgage or home equity loan that a homeowner thought was resolved or paid off but resurfaces, often with accumulated interest and fees, threatening foreclosure. These “dead” loans come back to life when the original mortgage was modified or discharged, or the lender disappeared during the 2008 mortgage crisis, only for the loan to be sold to a new collector who then demands payment.
No Remedy
According to Finlay, the challenged provisions of AB 130 supposedly focused on remedying issues related to a narrow class of abandoned mortgages “However, as enacted Civil Code section 2924.13 casts a much wider net that drastically reduces – and in many cases eliminates – the enforceability of virtually all loans secured by subordinate liens (e.g., second mortgages and equity lines of credit) on residential property,” Finlay wrote.
The plaintiffs said AB 130, passed earlier this year, redefines routine loan servicing practices as “unlawful” and imposes new restrictions on foreclosure rights, “creating serious risks for junior lienholders and borrowers in need of foreclosure prevention alternatives.”
‘Will Limit Access’
“At a time when only 15% of Californians can afford a median-priced home, the law will limit borrower’s access to credit products that many homeowners and small businesses rely on,” Buchalter stated.
The plaintiffs said they are seeking a preliminary and permanent injunction to stop enforcement and protect access to credit and financial flexibility across the state.
