On September 22, the Governor of California signed AB 3100 into law (the “Act”) which will change the requirements for conventional home mortgage loans in the state. The legislation will require any conventional home mortgage loan originated on or after January 1, 2027, secured by an owner-occupied residential property with up to four dwelling units, to include provisions allowing any existing borrowers to purchase another borrower’s property interest. This sale would assume the seller’s portion of the mortgage in the event of a divorce, legal separation or property settlement (provided the assuming borrower qualifies for the loan).

The Act will align California with federal guidelines under the Garn-St. Germain Depository Institutions Act, which restricts the enforcement of due-on-sale clauses in cases of property transfers because of divorce or other family-related transactions. By codifying these guidelines into state law, the Act will require lenders to explain the loan assumption process in the loan documents given to borrowers.