California’s mortgage lending regulations continue to evolve as state legislators introduce new measures aimed at strengthening consumer protections and standardizing lending practices. Among these developments is Assembly Bill 130 (AB 130), proposed legislation that could expand compliance obligations for private lenders and servicers across the state if passed.
For those operating in California’s mortgage space, understanding the potential implications of AB 130 is critical. It introduces stricter disclosure, documentation, and borrower communication requirements, areas where even small compliance missteps could lead to operational delays, financial penalties, or reputational harm.
In this post, we’ll break down what AB 130 entails, explore the top compliance challenges it presents for private lenders, and explain how technology solutions can help organizations manage the changes it would introduce.
Understanding AB 130 and Its Impact on California Private Lenders
AB 130 represents a significant update to California’s regulatory landscape, expanding compliance expectations for private lenders that service or hold subordinate mortgages. The law is intended to address what are called “zombie mortgages,” older second or junior liens that may have been inactive or poorly maintained, though it applies far more broadly across the lending space.
AB 130’s requirements would extend to all subordinate loans secured by residential property. The law also applies retroactively, meaning that even loans originated years ago fall within its scope.
If the bill passes, maintaining compliance will be critical, not only to avoid potential legal or financial penalties but also to preserve borrower trust and business reputation. Even small oversights in documentation or recordkeeping can have costly implications.
To stay ahead of regulatory changes, including AB 130, many lenders rely on technology-driven compliance solutions. Platforms such as The Mortgage Office (TMO) help automate documentation, manage borrower communications, and maintain accurate audit trails, all of which are essential in adapting to evolving regulations with minimal disruption to daily operations.
What Is AB 130? Key California Mortgage Law Requirements Private Lenders Need to Know
So what exactly would AB 130 mean for private lenders? Here’s a closer look at several of the bill’s core components:
Rules for Second Mortgages and Junior Liens
The bill establishes new standards for the servicing and foreclosure of subordinate liens. Before initiating foreclosure on a second or junior mortgage, lenders would be required to confirm that the loan’s entire servicing history complies with all applicable laws, covering both the current servicer and any prior servicers who handled the account.
Certification of Compliance
AB 130 would require private lenders and servicers to obtain a certification of compliance before initiating a foreclosure on a subordinate lien. This is a formal attestation confirming that no compliance violations occurred throughout the life of the loan. The certification must confirm that:
- There has been ongoing written contact with the borrower within the last three years
- All servicing and ownership transfer notices were properly delivered
- No statement was ever made that the loan was written off
- No foreclosure threats were issued before the certification was filed
- All legally required borrower statements were sent as required
If any compliance issue occurred at any point, the lender must disclose it in the certification.
Borrower Notification Requirements
AB 130 also reinforces the importance of clear and timely borrower communication. To remain compliant with the bill, lenders are required to maintain detailed records of all borrower notifications, disclosures, and servicing communications. Proper documentation of these interactions will be a key factor during audits or reviews.
Record-Keeping Standards
If passed as written, the bill would introduce the need for more structured recordkeeping. It will be in California lenders’ best interest to meticulously track and securely store communications so they can readily prove that all provisions of the legislation are satisfied.
Top Compliance Challenges for Private Lenders Under AB 130
If enacted, AB 130 would introduce several new compliance obligations that reshape how private lenders operate in California. Key challenges that lenders may face under AB 130 as a result include:
- Foreclosure Process Complexity
AB 130 places additional emphasis on transparency and borrower communication throughout the foreclosure process. Private lenders may need to adjust workflows to meet new notification timelines, provide standardized borrower disclosures, and document each stage of the process more thoroughly.
These added requirements could extend foreclosure timelines and open up more opportunities for borrower disputes, administrative delays, or legal challenges if procedures aren’t followed precisely.
- Borrower Disputes and Legal Risks
With greater oversight and new disclosure standards, lenders may face heightened exposure to borrower complaints or enforcement actions. Discrepancies in communication, documentation, or adherence to mandated timeframes could lead to formal disputes or litigation. Proactively managing borrower interactions and maintaining comprehensive digital records will be key to reducing the likelihood of legal challenges.
- Documentation Requirements
AB 130 would require lenders to maintain meticulous, audit-ready documentation across all lending activities. This includes recording borrower communications, transfer notices, and other servicing updates in a manner that is both secure and easily retrievable.
For many organizations, this increases the administrative workload, particularly for lenders that manage large loan portfolios or multiple servicing entities.
How Mortgage Software Can Solve AB 130 Compliance Challenges
As compliance expectations shift under AB 130, manual processes and fragmented recordkeeping can make it difficult for private lenders to stay organized and responsive. Mortgage compliance software provides a practical, scalable way to manage new requirements, helping lenders maintain compliance without overextending internal teams.
Technology-driven solutions with built-in compliance tools, like The Mortgage Office’s loan management platform, can help address these challenges. Here’s how:
- Automated Compliance Tracking
Mortgage software platforms streamline tracking for reporting and timeline-based requirements. Native compliance tools automatically monitor critical deadlines, send alerts when actions are due, and verify that each step aligns with applicable regulations.
With automated compliance checks and built-in regulatory updates, TMO enables lenders to stay ahead of new or changing state requirements without needing to revise internal procedures.
- Centralized Recordkeeping
A centralized digital system enables lenders to keep track of all loan, borrower, and compliance data in one secure location. This eliminates the risk of missing documentation or inconsistent records across departments.
TMO provides complete audit trails for every transaction and communication, ensuring that documentation is always organized, accurate, and audit-ready. Secure data management tools protect sensitive borrower information while simplifying retrieval during reviews or investigations.
- Streamlined Borrower Communication
Borrower communication requirements are a major focus of AB 130. With mortgage servicing software, lenders can automate notifications, track correspondence, and log all interactions for easy reference. This reduces the risk of missed deadlines or incomplete documentation while improving overall transparency with borrowers.
TMO integrates communication tools directly into the servicing workflow, creating clear, verifiable records that demonstrate compliance with state-mandated timelines and disclosure requirements.
Simplifying AB 130 Compliance for Private Lenders
AB 130 represents a significant shift in how private mortgage lenders in California could be expected to manage compliance. By introducing stricter borrower notification requirements and compliance standards, the bill raises the bar for operational transparency and documentation practices. For lenders, these new expectations could translate into greater administrative demands and increased exposure to compliance-related risk.
Adopting a modern mortgage servicing platform, such as The Mortgage Office’s loan management software, can help lenders address these challenges with confidence. Through automated compliance tracking, centralized data management, and secure audit-ready documentation, TMO enables lenders to streamline operations while maintaining accuracy and accountability.
With potential regulatory changes on the horizon, now is the time to prepare. Explore how The Mortgage Office can help your organization stay ahead of AB 130 compliance requirements, and discover a more efficient, reliable way to manage every aspect of your lending operations. Schedule a demo today.