Summary: On September 8, 2025, a coalition of mortgage lenders and trade groups filed suit in federal court challenging the constitutionality of California’s new law, AB 130. The case, California Mortgage Association v. Bonta, was filed by attorney T. Robert Finlay.

The lawsuit argues that while AB 130 was intended to address so-called “zombie mortgages” (old junior liens that resurface years later), the law goes far beyond that purpose. According to the complaint, the statute “casts a much wider net” that severely limits or eliminates the enforceability of nearly all subordinate liens on residential property in California.

Finlay contends AB 130 violates multiple constitutional protections, including the Contract Clause, Due Process, Takings, and Equal Protection provisions, and is also preempted by federal laws such as the Truth in Lending Act and RESPA. Critics warn the law could effectively wipe out second mortgages in the state, while supporters argue it provides needed protections against abusive foreclosure practices.

What does this mean?

This means that a lawsuit was officially filed to challenge the language within AB 130. The hope, and in my opinion, the correct outcome will result in a massive re-work of the bill with the guidance and input from the mortgage industry.

The fact that such a poorly written bill was rushed into law with essentially no input from industry professionals is both shocking and surprising.

While there is no word yet on an injunction, we will keep our fingers crossed for some relief from what we consider an unconstitutional law.