On Sept. 28, 2020, California Assembly Bill 2463 (AB 2463) was signed into law (effective Jan. 1, 2021), amending certain sections of the Enforcement of Judgments Division of the California Code of Civil Procedure (CCP). AB 2463 effectively prohibits a judgment creditor from seeking a sale of the judgment debtor’s principal residence to enforce a judgment lien, with certain exceptions.  Fortunately for credit unions, this new law contains an express exclusion for certain debts owed to financial institutions.

Under current law, a credit union can enforce a money judgment obtained against one of its members by levying on the real and personal property of the member, including the member’s principal residence.  The member would have the right to claim an exemption in the equity available in their principal residence up to a specified amount (the homestead exemption), but any additional equity beyond the exempt amount would be available to satisfy the judgment.  To levy on a member’s principal residence, the credit union would need to file a petition with the court to order the sale of that residence in accordance with CCP section 704.760.

New CCP section 699.730 will prohibit the sale of a principal residence to satisfy a judgment lien based on a “consumer debt” unless the principal residence was collateral securing the underlying debt at the time the debt was incurred. A consumer debt is defined as a “debt incurred by an individual primarily for personal, family, or household purposes.”

Certain types of debts are expressly excluded from this prohibition.  Debts owed to a financial institution, other than student loan debts, may still be enforced against the principal residence if both of the following conditions are met:

• The amount of the original judgment when entered was in excess of $75,000; and
• The amount owing on the judgment at the time of execution is greater than $75,000, both as adjusted for inflation by the Judicial Council.
  
  

Examples of permissible debts would include debts for credit cards, personal loans, vehicle loans and loans secured by real property other than the property sought to be sold to enforce the judgment, provided they meet the dollar thresholds.

AB 2463 will not prohibit a credit union from foreclosing on its interests in real property that secures a mortgage, regardless of whether that sale is in the form of a trustee’s sale under the power of sale in a deed of trust, or a judicial foreclosure.  Further, it would not prohibit the foreclosure of its interest in real property securing any debts at the time they were incurred, including student loan debts.

Student loan debt, which remains subject to the new prohibition, is defined in new CCP section 699.730(b)(ii) as “debt based on any loan made to finance postsecondary education expenses, including tuition, fees, books, supplies, room and board, transportation, and personal expenses. Student loan debt includes debt based on a loan made to refinance a student loan but does not include debt secured by the debtor’s principal place of residence at the time it was incurred.”

AB 2463 also updates the content requirements for the petition that must be filed by a financial institution to incorporate the new limitations described above. In addition to the existing content requirements, amended CCP section 704.760 provides that an application must contain a statement as to the following:

• Whether or not the judgment is based on a consumer debt;
• If based on a consumer debt, whether the debt was secured by the debtor’s principal place of residence at the time it was incurred, or a statement indicating which of the exemptions under new section 699.730(b) are applicable;
• If an exemption applies, the dollar amount of the original judgment on which the lien is based.
• If there is more than one basis, the statement must indicate all bases that are applicable.
  
  

In essence, the passage of this law will limit, but not eliminate, a credit union’s right to levy on a member’s principal residence to enforce a judgment against that member.  Debts that were originally secured by the member’s principal residence, including student loan debts, can be satisfied in accordance with traditional foreclosure procedures.  For credit unions, non-student loan judgment debts generally in excess of $75,000 may be satisfied by levying on the member’s personal residence in accordance with the newly amended content requirements to petition the court.  For other judgment debts, credit unions can look to the other judgment enforcement remedies available to it under current law.

Consult with legal counsel to learn more about your judgment enforcement rights as these will vary depending on the type of judgment you have and the underlying debt.

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