Why this article is important: Homeowners are still recovering from the LA-area wildfires of January 2025 and will be rebuilding for years to come. Under a new law, they are now assured access to mortgage forbearance programs.
Wildfire forbearance for homeowners
Following the January 2025 LA-area wildfires, Governor Newsom announced a commitment from several hundred banks, credit unions, lenders and servicers to provide up to 90 days of mortgage forbearance to homeowners in the affected areas. Under a forbearance agreement, the mortgage holder agrees to temporarily halt any foreclosure action while the homeowner attempts to bring the mortgage current. Fannie Mae and Freddie Mac also provided guidance to servicers about participating in disaster-related loss mitigation programs.
However, there was no legal requirement for any of these entities to offer mortgage forbearance to homeowners who lost their home due to the wildfires.
A new law, passed by Assembly Bill 238, requires mortgage servicers to offer mortgage forbearance to homeowners experiencing financial hardship preventing them from making timely mortgage payments due to the:
- Eaton Wildfire;
- Palisades Fire; and
- related windstorm events. [Calif. Civil Code §§3273.23(a); 3273.21(f)]
To qualify, the homeowner submits a request for mortgage forbearance to their servicer before the earlier of:
- six months following the termination of the state of emergency issued by Governor Newsom on January 7, 2025 (still ongoing at the time of this writing); or
- by January 7, 2027. [CC §3273.23(a)(1)]
In the request, the homeowner needs to affirm they are experiencing financial hardship due to the wildfire. [CC §3273.23(a)(2)]
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Forbearance programs
Following receipt of the forbearance request, the mortgage servicer needs to respond within ten business days. [CC §3273.23(c)]
The servicer will offer mortgage forbearance for an initial 90 days. Upon the homeowner’s request, the forbearance is to be extended for additional 90-day periods, for a maximum of 12 months. This maximum forbearance period may include any forbearance the servicer provided to the homeowner prior to the new law’s passage. [CC §§3273.23(b); (f)]
When granting forbearance, the servicer informs the homeowner that all mortgage payments need to be repaid. However, when the homeowner is current on their payments at the time of entering into the program, a lump sum payment will not be required upon exiting forbearance. [CC §3273.24]
The servicer needs to inform the homeowner of the end of the program no later than 30 days before the end of the initial forbearance period. In this notice, the servicer needs to inform the homeowner of:
- what documentation the homeowner needs to submit to be considered for additional forbearance; and
- the deadlines for additional forbearance consideration. [CC §3273.23(h)]
When the servicer denies the forbearance request, they need to specify the reason for the denial, including any relevant contractual provisions that are the basis for the denial. [CC §3273.23(d)]
Further, when the denial is based on a curable reason, such as an incomplete application, the servicer needs to in their response:
- identify the curable defect;
- provide 21 calendar days from the date of mailing the response for the homeowner to cure the defect; and
- respond to the homeowner’s revised request within five business days of receipt, accepting the revised request before the 21-day period to cure the defect lapses. [CC §3273.23(e)]
During forbearance, the servicer may not charge the homeowner late fees or interest. [CC §3273.23(g)]
Further, the servicer needs to report the credit obligation to credit reporting agencies as current during the forbearance period, unless the homeowner was already in default prior to the date of disaster. In the latter case, when the delinquent homeowner brings the mortgage current during the forbearance plan, the servicer will change its delinquent status with credit agencies to current. [CC §3273.23(i)]
During the forbearance period, when the homeowner is performing pursuant to the terms of the forbearance, the servicer will not initiate any judicial or nonjudicial foreclosure proceedings, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction. [CC §3273.25]
However, when in conflict, guidance for federally-backed loans will supersede any of the forbearance requirements introduced by this new law. [CC §3273.27(a)]
Servicers of loans which are not federally-backed may also choose to comply with Fannie Mae or Freddie Mac guidelines in lieu of the above requirements when the guidelines are in conflict with the new law. [CC §3273.27(b)]
Seeking assistance
In some cases, mortgaged homeowners will find their insurance provides a replacement cost value lower than the amount needed to rebuild. In other cases, the insurance payout is lower than the remaining mortgage balance.
In all cases, the lender (lienholder) has the biggest say in what comes next. When the lender chooses to use the insurance payout to satisfy as much of the mortgage amount as possible, the homeowner is still left with the remaining debt to pay.
Since the homeowner is now using the portion of their paycheck they would have been spending on their mortgage on rent, they are unlikely to be able to continue paying their mortgage.
Thus, while the extended forbearance period will help for a time, the underinsured homeowners’ best bet is to discuss with their servicer how to change their payment plan so it is something they can afford to maintain while paying rent on housing elsewhere. As with all forbearance plans, the debt remains, and it is the homeowner’s responsibility to ultimately pay it — or default and force the mortgage holder to foreclose.
Qualified homeowners seeking assistance may find information on their forbearance options at the website of California’s Department of Financial Protection and Innovation (DFPI). [CC §3273.28]
When the homeowner’s servicer is not listed on the DFPI’s website, the homeowner is urged to contact their servicer directly. When a homeowner feels they have been treated unfairly in the forbearance process, they may submit a complaint with the DFPI.
Related article:
Wildfire protection is a statewide legislative concern for housing
