California AB 130: Zombie Second Mortgage Protections

In California, a new law (AB 130) offers strong protections for homeowners facing foreclosure due to a "zombie" second mortgage. Signed into law on June 30, 2025, and effective immediately, AB 130 limits the ability of lenders and debt collectors to foreclose based on old second mortgages that borrowers often believed were settled, forgiven, or were part of a first mortgage loan modification.

Here are the key features of this foreclosure law, with more details below.

• Before starting a foreclosure for a zombie second mortgage, the mortgage servicer must send you a signed statement (a certification) confirming they and all prior servicers followed all of the legal rules under this law.
• If the servicer doesn't file the certification, admits in the certification that it didn't comply with the law, or you think the servicer didn't follow the law's requirements (and that the servicer misrepresented its compliance history), you can challenge the foreclosure in court.
• If you challenge the foreclosure in court, the sale is put on hold until the court makes a decision.

What Is a Second Mortgage?

A "second mortgage" is a loan that a homeowner takes out in addition to their original, or "first," mortgage. Second mortgages come in different forms, such as home equity loans and home equity lines of credit (HELOCs). Sometimes, a homeowner might have a first mortgage, a second mortgage, and even a third mortgage.

Like the first mortgage, a second mortgage is secured by using the home as collateral. If you take out a second mortgage, you typically sign a promissory note (an agreement to repay the loan) and a second mortgage contract that creates a lien against your property.

The first mortgage is the "primary" lien on the home and has priority for repayment in a foreclosure. (In most cases, liens get priority in the order in which they're recorded in the land records.) The second mortgage is "subordinate," meaning it gets paid only after the first mortgage is satisfied. So, the second mortgage is second in line to be repaid if the home is sold at a foreclosure sale.

What Are Zombie Second Mortgages and Why Do They Matter in California?

A "zombie" mortgage is a loan that unexpectedly reappears after being forgotten or believed resolved. This term refers to a mortgage debt (typically a second mortgage) that a homeowner thought was forgiven, satisfied, discharged, included in a first mortgage modification, or written off. In many cases, there has been no communication from the lender or loan servicer for years. Yet, the mortgage debt eventually resurfaces, with the lender (or perhaps a debt collector) demanding payment.

An old second mortgage is also sometimes called a "silent second mortgage."

How Zombie Second Mortgages Started: California's Housing Crisis

Many zombie second mortgages were taken out before the 2008 foreclosure crisis, frequently as a second loan in "80/20" or "piggyback" mortgage arrangements, where the first loan covered 80% and the second covered the remaining 20% of a home's value. When the economy and housing market crashed, homeowners defaulted on these second mortgages in record numbers, especially in California.

During the housing crisis, lenders regularly charged these loans off and stopped trying to collect payments on them. They quit sending billing statements and stopped communicating with borrowers. In many cases, the lenders sold these second mortgage debts to new owners, just to be rid of them and get something (if only pennies on the dollar) for their investments.

Because lenders stopped sending bills and ceased contacting borrowers, many homeowners believed their debts were gone.

Why Are These Zombie Mortgages Coming Back to Life?

Now, years later, home values have not only recovered, but gone up considerably. So, the new owners of these second mortgage debts (or debt collectors on their behalf) are trying to collect on them, threatening foreclosure or demanding repayment with back interest and fees. This comes as a shock to homeowners who didn't know the debt still existed.

Can a Debt Collector Legally Foreclose Because of a Zombie Second Mortgage?

A zombie mortgage is generally still a valid debt unless it was canceled, paid off, or no longer enforceable due to the statute of limitations. However, state laws sometimes give specific protections to borrowers against zombie second mortgage debt, including how and when these debts can be collected. States withlaws that cover zombie second mortgage foreclosure procedures and notices include California, Connecticut, Ohio, and Virginia.

How California's New Law AB 130 Addresses Zombie Second Mortgage Debt

California's AB 130 added a new section to the state's foreclosure laws. (Cal. Civ. Code § 2924.13 (2025).) This California law, which became effective on July 1, 2025, provides homeowner protections against nonjudicial and judicial foreclosure proceedings associated with zombie second mortgages.

Specifically, this law places certain requirements on lenders trying to collect on zombie loans and puts restrictions on when these old debts can be foreclosed. The law provides borrowers with powerful defenses against zombie second mortgages.

Here's what the law requires and prohibits.

Required Certifications for Foreclosures on Zombie Second Mortgages Under California Law

When recording a notice of default as the first step in the California foreclosure process, the servicer, lender, or the foreclosure trustee must record a certification under penalty of perjury that the servicer (and all prior servicers) didn't engage in any of the unlawful practices under the law (described below). Further, the servicer must list all instances when it and all prior servicers committed any of the illegal practices. (Cal. Civ. Code § 2924.13(a),(c) (2025).)

This certification requirement is significant: The current servicer must not only certify that it has not committed any unlawful practice, but also that all prior servicers also didn't commit any unlawful practice. If a prior servicer has gone out of business, this is a difficult task. How can a current servicer be sure that a previous, defunct servicer followed all of the rules? If you find yourself in this situation, you might have a defense to a zombie second mortgage foreclosure. Also, servicers commonly make errors when handling loans. It's certainly possible that a servicer made a mistake that's illegal under AB 130 at some point during the life of the loan.

Notice About Your Rights in a Zombie Second Mortgage Foreclosure

Simultaneously with the service of a recorded notice of default, the servicer must also send the borrower a copy of the certification (via certified mail with return receipt requested) and a notice that, if the borrower believes the servicer or any prior servicer engaged in any unlawful practice or that borrower believes the servicer misrepresented the compliance history of the entire loan, the borrower may petition a California court for relief before the foreclosure sale. (Cal. Civ. Code § 2924.13 (c) (2025).)

How to Stop a Zombie Second Mortgage Foreclosure in California

Under this law, if you file a petition to challenge a nonjudicial foreclosure, a court will give you an automatic injunction against the foreclosure. (Cal. Civ. Code § 2924.13(d) (2025).) This legal right is a big deal—you can stop a second mortgage foreclosure (temporarily or perhaps, in the right circumstances, permanently) by merely filing a petition in the appropriate court.

If the lender initiates a judicial foreclosure, you may raise the unlawful practices as an affirmative defense. (Cal. Civ. Code § 2924.13(e) (2025).)

Whether a zombie second mortgage foreclosure will be merely delayed or permanently derailed is up to the discretion of the trial judge.

Prohibited Lender Practices Under AB 130 in California Foreclosures

If the current or prior servicer committed any of the following illegal practices under the law, you can challenge the foreclosure in court.

• Failing to provide written communication to the borrower about the loan for at least three years. You can challenge the foreclosure of a zombie second mortgage if there was a three-year gap in communication during the life of the loan. In other words, even if you've started receiving communications from a mortgage servicer about the debt, but a prior servicer didn't communicate with you about it for at least three years, this would constitute an "unlawful practice" and you can fight the foreclosure.
• Failing to send required notices of servicing transfers or loan ownership transfers. Both federal law and California law require written correspondence to be sent to the borrower when there is a change in the mortgage servicer or loan owner. (Cal. Civ. Code § 2937 (2025).) So, the current mortgage servicer has to verify under the penalty of perjury that it and all former mortgage servicers did, indeed, provide the required transfer letters during the entire life of the loan. If you didn't get these notices and the servicer can't prove they were sent, you can possibly defeat the foreclosure.
• Foreclosing or threatening to foreclose after advising the borrower in writing that the loan was written off or discharged, including by sending an IRS Form 1099-C, Cancellation of Debt. If the lender previously let you know in writing that it discharged or wrote off the loan, it can't enforce the debt. (There is some case law that is perhaps contrary to this requirement, so there could be litigation about the legality of this part of the new law. See 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). In that case, the court said "[Ea]ch of the four causes of action allege that [the servicer] had no authority to attempt to collect on the Second Loan or begin foreclosure proceedings because [the lender] represented that the Second Loan was "charged off" or "written off." However, that the Second Loan was "charged off" or "written off" by [the lender] does not mean that the loan was extinguished." Talk to a lawyer if your lender advised you that your loan was written off or discharged and is now trying to collect on it. )
• Foreclosing or threatening to foreclose after the statute of limitations expires. If applicable in your situation, you can assert that the statute of limitations bars foreclosure.
• Failing to provide periodic account statements as required by law. If the foreclosing party violated the Truth in Lending Act (TILA) (Regulation Z) by failing to send periodic statements, you can raise this issue to a court. (Cal. Civ. Code § 2924.13(b) (2025).)

Remedies and Court Relief for Violations of California's Zombie Second Mortgage Law

Under this law, you can get relief from a nonjudicial foreclosure either before or after a foreclosure sale. Again, what relief or remedy you'll get is up to the discretion of the judge overseeing the case. (In a judicial foreclosure, you must raise violations of this law as an affirmative defense.)

Remedies If You File a Petition in Court Before a Nonjudicial Foreclosure Sale

If you ask a court for relief before a foreclosure sale occurs in a nonjudicial foreclosure, the sale will be enjoined (paused) until a court makes a final determination. (Cal. Civ. Code § 2924.13(d) (2025).)

Under the law, the court may provide equitable remedies that the court deems appropriate, depending on the extent and severity of the mortgage servicer's violations. So, the court might strike all or a portion of the arrears claim, bar foreclosure, or permit foreclosure subject to future compliance and corrected arrearage claim. (Cal. Civ. Code § 2924.13(f) (2025).) (This applies to nonjudicial and judicial foreclosures.)

Remedies If You File a Petition in Court After a Nonjudicial Foreclosure Sale

You may file suit to have a nonjudicial foreclosure sale set aside (made invalid) if:

• the certification wasn't recorded
• the certification indicates an unlawful practice occurred during the life of the loan, or
• you think there was a misrepresentation of the compliance history in the certification. (Cal. Civ. Code § 2924.13(g) (2025).)

Applicability of California's Zombie Second Mortgage Law

The law's requirements apply to every loan servicer who managed the loan, even if a predecessor company is no longer in business. In addition, the law is generally directed at nonjudicial foreclosures, but it also says that homeowners may raise any of the unlawful practices as affirmative defenses in any judicial foreclosure on a subordinate mortgage in California. (Cal. Civ. Code § 2924.13(a),(e) (2025).)

Taking Legal Action to Stop Zombie Second Mortgage Foreclosures

Ultimately, this law gives borrowers the ability to challenge a zombie second mortgage foreclosure in court if they believe there has been loan servicing misconduct under AB 130, including issues with compliance by prior servicers. However, you should be aware that any failure to comply with the provisions of this law won't affect the validity of a trustee's sale or a sale in favor of a bona fide purchaser. (Cal. Civ. Code § 2924.13(h) (2025).)

Homeowners facing the threat of foreclosure because of a zombie second mortgage should consider talking to a foreclosure lawyer immediately to explore all options for fighting the foreclosure. This law might be able to provide you with defenses or options to avoid losing your home.