180 days of forbearance, no lump-sum payoff, and a foreclosure freeze
California just rewrote the disaster playbook for mortgage servicers.
Governor Gavin Newsom signed the California Mortgage Relief Act on September 15, 2026, creating a statewide forbearance framework for borrowers whose homes become uninhabitable after a federally declared disaster. The law takes effect January 1, 2027.
Assembly Bill 1842, authored by Assemblymember Harabedian, gives eligible borrowers an initial 180-day forbearance window, extendable in 90-day increments up to 12 months. Borrowers must submit their initial request within six months of the disaster declaration. The application itself is light - a verbal or written affirmation that the home is uninhabitable, no additional documentation required.
The definition of "uninhabitable" is broad. For multiunit properties secured by a residential mortgage loan, if any single unit qualifies, the entire property does.
Servicers must respond in writing within 10 business days, stating whether the request is approved, denied, or deficient. Denials are permitted only where compliance would conflict with existing investor guidelines, and the servicer must cite the specific contractual provision. Deficient applications get a 21-day cure window, with a five-business-day turnaround on resubmissions.
During forbearance, servicers cannot assess late fees, charge default interest, or initiate any foreclosure process - judicial or nonjudicial. That includes foreclosure judgments, orders of sale, and foreclosure-related evictions.
The credit reporting mandate may be the provision servicers feel most. Accounts in disaster forbearance must be reported as current under the federal Fair Credit Reporting Act. Servicers are barred from furnishing any information indicating payments are in forbearance.
When forbearance ends, servicers must offer at least one repayment option that does not demand a lump-sum payoff. Monthly principal and interest cannot increase beyond what an adjustable-rate reset would produce under the original loan terms.
Federally backed loans carry a safe harbor. Servicers are not liable where compliance would be impossible under servicing guidelines from Fannie Mae, Freddie Mac, FHA, the VA, or USDA Rural Development, as those guidelines existed on the date of the disaster declaration.
Borrowers who were more than 90 days delinquent before the disaster, who had an unrescinded notice of default on record, or who had surrendered the property are excluded.
Enforcement sits with the Attorney General, district attorneys, and county counsel through civil action. The Department of Financial Protection and Innovation must post federal servicing guideline links and a dedicated borrower assistance phone number on its website.
For servicers operating in California, the compliance build starts now - response timelines, notice requirements, and credit reporting protocols need to be in place before the next federal disaster declaration lands.
