For Private Lenders Investing in Business Purpose Loans—So You Don’t Get Burned in Second Position

What used to be a strategic advantage for junior liens may now put your repayment at risk

With over 23 years in real estate litigation and foreclosure, I’ve helped lenders navigate California’s shifting legal landscape. And this year, the game has changed again.

California’s Civil Code § 2924.13, effective July 1, 2025, targets junior liens on residential property—even if the loan is for business purposes.

The statute defines a “subordinate mortgage” as any deed of trust or mortgage recorded after another lien already encumbers the same residential property. In other words: if your lien isn’t first, it’s subordinate.

For years, being in second position was a smart move for private lenders making business purpose loans. Why? Because Civil Code § 2923.5—which imposes strict pre-foreclosure notice and contact requirements—only applies to first position, consumer-purpose loans.

Second position offered a clean exemption.
Not anymore.

Now, if your loan is secured by residential real estate and is in junior position, § 2924.13 applies. And it imposes strict compliance obligations before you can foreclose.

Here’s the exception: if your loan was originally in first position and only became junior later through subordination, the statute does not apply.

Bottom line: private lenders need to understand what “subordinate mortgage” means—because it now determines whether your foreclosure can be challenged and whether your investment gets repaid.

Follow for more as we continue breaking down this powerful new statute.