🚨 California Investors: Hidden Bill Language Could Crush Junior Debt

If you invest in seller carrybacks, second-position loans, or trust deeds through a Self-Directed IRA (SDIRA), there’s a stealth legislative move happening in California you need to know about — and act on fast.

Here’s what’s going on:

💣 SB 681 Was Stopped—Then Quietly Resurrected in a Budget Bill

Earlier this year, real estate investors and lending professionals rallied to oppose SB 681, a bill that would’ve made junior position loans (like seconds, HELOCs, or seller carrybacks) nearly unenforceable in California.

The community made progress—SB 681 didn’t move forward. But now, the same harmful language has been quietly inserted into a 215-page budget trailer bill, AB 130, which is about to be voted on this week. Most lawmakers don’t even know it’s in there.

🧨 What This Means in Plain English

If AB 130 passes with this language intact, here’s what could happen:

• Junior loans could be declared “abandoned” if a servicer hasn’t contacted the borrower in 3+ years, missed a notice, or sent a 1099-C.
• If a loan is deemed “abandoned,” it becomes legally unenforceable — even if the borrower is still making payments.
• Foreclosures on second liens would be prohibited. That means your loan is still on the books, but you have no way to collect.
• Even worse: past foreclosures could be overturned retroactively, clouding title and disrupting deals that closed years ago.

🏚 Why This Matters to BiggerPockets Investors

This isn’t just a headache for lenders — it’s a full-blown threat to anyone who:

• Uses an SDIRA to invest in trust deeds in California
• Holds seller-carry notes from creative finance deals
• Participates in note funds or hard money lending platforms
• Relies on HELOCs or second-position financing for flips or BRRRRs
• Works with investors who fund deals via private notes

If these junior loans become unenforceable, they lose all real value. And if that happens:

• SDIRA custodians may mark those loans down to zero
• You could lose income streams you've been counting on
• Past transactions could be reopened and challenged

🔁 The Ripple Effects

Who’s Affected

How

Private lenders

Second liens = dead. Expect less capital flowing into California deals.

IRA investors

Trust deed investments marked to zero = less cash flow, more uncertainty.

Buyers/sellers

Seller financing options dry up. Buyers lose affordability options.

Real estate market

Less creative financing = slower transactions, more deal fallout.

🔧 What You Can Do Right Now

This is the kind of policy change that flies under the radar — until it hits your portfolio. Here’s how you can fight back:

1. Contact Your CA Assemblymember and Senator

• Go here to find them: https://findyourrep.legislature.ca.gov
• Call and email them today. Tell them to oppose AB 130 unless the SB 681 language is removed.

2. Use the Community Voice

• Post about it on BiggerPockets, LinkedIn, and X (Twitter).
• Use hashtags like:
  #StopSB681 #ProtectSDIRA #CaliforniaRealEstate #AB130 #JuniorLienCrisis

3. Share This with Fellow Investors

• If you know someone who holds junior liens in California — send this their way.
• If you're part of a mastermind, real estate meetup, or investor group — bring it up.

✋ Bottom Line

AB 130 is not just a budget bill. It’s a Trojan horse that could wipe out California’s junior lien market and trigger massive headaches for real estate investors, SDIRA account holders, and private lenders.

The time to speak up is right now—before this bill passes without a fight.

Read more HERE.