SACRAMENTO— The California Credit Union League has joined mortgage lenders and other trade associations in suing to block a new state law that restricts foreclosures on so-called “zombie mortgages,” arguing it is unconstitutional.
“The challenged provisions of AB130 supposedly focused on remedying issues related to a narrow class of abandoned debts as ‘zombie mortgages,’” attorney T Robert Finlay of Wright, Finlay & Zak, wrote. “However, as enacted, this new California Civil Code section 2924.13 casts a much wider net that drastically reduces—and in many instances eliminates--the enforceability of virtually all loans secured by subordinate liens on residential real property in California,” the Daily Journal reported.
A zombie mortgage refers to a long-dormant debt, often from a second mortgage or home equity line of credit, that unexpectedly reemerges years after homeowners assumed it was settled.
The “wider net” will not just create unintended consequences, Finlay said, but should also invalidate the law because it violates the contract clause of the U.S. and California Constitutions by impairing existing contract and property rights, the Daily Journal added, noting that Finlay also claims AB 130 violates the due process, takings, and equal protection clauses of the U.S. Constitution.