Private Lenders: Judicial Foreclosure Isn’t a Shortcut
Section 2924.13(e) adds more friction to an already costly process
Thinking of switching to judicial foreclosure to bypass the new certification rule?
With over 23 years in real estate litigation and foreclosure, most business purpose lenders already know that judicial foreclosure is slow, expensive, and comes with a post-sale redemption period. But California’s new Civil Code § 2924.13(e) now adds another major drawback:
“It shall be an affirmative defense in a judicial foreclosure proceeding if the court finds the mortgage servicer engaged in any of the unlawful practices specified in subdivision (b).”
Unlawful Practices Now Follow the Foreclosure
This provision was enacted to prevent lenders from sidestepping the new statute by using the courts. While the certification requirement itself only applies to nonjudicial foreclosure, the consequences of failing to comply now apply to judicial actions too.
Borrowers can raise the same six issues listed in subdivision (b) as an affirmative defense in court. These include:
Failing to communicate in writing with the borrower for 3+ years
Missing required transfer or ownership notices
Issuing a 1099-C and then foreclosing
Foreclosing after the statute of limitations expired
Not sending required account statements
All were covered in earlier posts.
The Takeaway
Judicial foreclosure won’t insulate the loan from the statute. The unlawful practice defense travels with the loan, regardless of the enforcement path. Lenders relying on business purpose exemptions should still maintain clean servicing records and verify compliance early.
Follow for more as California’s new foreclosure statute is broken down section by section for private money lenders.