Wildfires devastated homes — This law is changing the game

Gov. Gavin Newsom signed legislation that mandates lenders provide mortgage payment deferrals lasting up to one year for homeowners facing financial difficulties due to the wildfires in the Los Angeles area.

Assembly Bill 238 establishes mandatory legal standards for mortgage assistance and builds upon earlier voluntary commitments the state negotiated with lenders in January, the governor's office announced.

The new law applies to borrowers affected by the Eaton Fire, Palisades Fire, and related disasters that triggered the state's emergency declaration issued on Jan. 7. Financial institutions must provide payment relief to qualifying homeowners who demonstrate economic hardship due to the fires.

Mortgage companies are required to offer an initial three-month deferral period under the legislation, with borrowers able to request additional three-month extensions, totaling no more than 12 months. Servicers have 10 business days to notify applicants whether their deferral request has been approved or denied.

The law shields homeowners from penalty fees, mandates that they are not required to pay the full amount of deferred payments immediately when the relief period ends, and prohibits foreclosure actions during the deferral period. Credit reports cannot reflect negative information for borrowers using the program.

"Homeowners rebuilding after a disaster need all the support they can get, including grace in light of this incredible hardship," Newsom said. "This bill is a welcome expansion of the forbearance agreements my administration secured earlier this year with major national and state-chartered lenders to offer mortgage relief to L.A. fire victims. Recovery requires an all-hands-on-deck approach, and I look forward to additional conversations with lenders in the coming months about how we can continue to support survivors together."

The January agreements with five major financial institutions provided a minimum of 90-day payment deferrals for fire survivors, with many companies voluntarily extending relief to one year. The new legislation makes these protections required by law for state and federally regulated financial institutions.

When servicers reject deferral applications, they must provide specific reasons for denial and allow borrowers to address any issues with their requests, as mandated by law.

The legislation works alongside another measure Newsom signed in August, which requires homeowners, not lenders, to collect interest earned on disaster insurance payments.

The January wildfires that hit the L.A. region destroyed thousands of residences and forced tens of thousands of people from their homes across several counties.