Senate Bill Signed into Law: Big Changes Ahead for Private Lending!

Great news!  Governor Newsom signed Senate Bill 1146 into law, which was written and sponsored by our Mortgage Association, The California Mortgage Association (CMA), of which we attend conferences biannually to stay up-to-date on ever-changing Private Money regulations.

This new legislation, effective January 1, 2025, will address the usury risk created by the Moon case.

What’s Happening?

In California, loans with interest rates over 10% are considered usurious, unless one of the several exemptions applies.  In private lending, the most common exemption occurs when the loan is negotiated or arranged by a licensed Broker.

In 2023, a wrench was thrown into this exemption by the Moon case, which was explained in my prior Newsletters.  The decision, known as “In re Moon, severely limited a lender’s ability to modify loans or offer forbearance without risking the loss of the broker exemption.

As a result, the options for lenders with loans above 10% interest were dramatically reduced by:

1. If the loan was a purchase money loan, the original broker could negotiate a forbearance.
2. Lenders could refuse a forbearance and foreclose.
3. Lenders could lower the interest rate below 10% and do a forbearance.
4. Lenders could risk legal exposure by not adhering to the ruling.

In response Senate Bill 1146 was proposed.

What Does Senate Bill 1146 Do?

SB 1146 amends the law to explicitly allow us, as a licensed broker, to negotiate or arrange a forbearance, modification, or extension of a loan with an interest rate of 10% or higher while preserving the broker exemption to the usury rate cap.

This is a huge win for lenders who rely on the broker exemption and want to avoid the pitfalls created by the In re Moon decisions. Once SB 1146 goes into effect in January 2025, private lenders will have the flexibility to offer forbearance and modifications with fewer legal concerns about usury violations.

We would like to thank the California Mortgage Association (CMA) for their relentless work in pushing this legislation forward. Special thanks goes to CMA’s Lobbyist Mike Belote, Legislative Committee Chair Liz Knight, and everyone else who played a crucial role in getting SB 1146 pushed through!

If you have any questions or concerns about how this affects your investments, please don’t hesitate to reach out to our team, here at Pacific Direct Mortgage. Thank you for your continued trust and partnership.

Warm regards,
Ken Walker
Broker/Owner
Pacific Direct Mortgage & Real Estate, Inc

DRE #01858042 / NMLS #1221130
Phone: 707-708-0797 
Office:  1400 N Dutton Ave #22 Santa Rosa, CA 95401