URGENT ACTION NEEDED TO PROTECT YOUR SELF-DIRECTED IRA

Unenforceable Debt? Why California Investors Must Stop AB 130 Now

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Below is a look at the key language that just moved from California SB 681 into the 215-page budget-trailer AB 130, followed by the most likely — and most immediate — effects on Self-Directed IRAs (SDIRAs) that invest in California debt instruments.

How to fight this – contact your Assembly member and State Senator— Today

🔧 How to Find Them:
Go to: https://findyourrep.legislature.ca.gov/
Enter your address to see both your Assemblymember and State Senator.

California Residents/Investors – Act Now!

Key language that just moved from SB 681 into the 215-page budget-trailer AB 130, followed by the most likely — and most immediate — effects on Self-Directed IRAs (SDIRAs) that invest in California debt instruments.

What the bill does to junior debt

Provision	Practical effect on a 2nd / HELOC / seller-carry note
“Abandoned debt.” A subordinate mortgage is deemed abandoned if (a) the servicer has sent no written communication for ≥ 3 years, or (b) required TILA/servicing-transfer notices were never delivered, or (c) the borrower received an IRS form (e.g., 1099-C) showing the debt was written off	The lien becomes legally unenforceable — even though the borrower still owes the money — unless the servicer proves, under penalty of perjury, that no portion is abandoned (sjud.senate.ca.gov, calmatters.digitaldemocracy.org)
Foreclosure bar. If any portion is “abandoned,” a servicer may not start, notice, or threaten a non-judicial foreclosure; a court must enjoin a judicial foreclosure if raised as a defense	Junior-lien holders’ only theoretical remedy becomes an expensive, time-barred collection action — de-facto wiping out their collateral value (sjud.senate.ca.gov)
Retroactive reach. The language applies to existing loans and even lets courts set aside completed foreclosure sales where a junior lien should have been treated as abandoned	Prior SDIRA investments that foreclosed (or bought REO) years ago could be reopened, clouding title and spooking insurers

Why SDIRA investors are uniquely exposed

1. Trust-deed concentration. Thousands of California SDIRAs hold fractional or whole second-position deeds of trust, HELOC participations, or seller-carry notes because (a) yields are high, and (b) custodians historically treated them as secured assets.
2. Non-bank capital. Private-money lenders, note funds and REITs source a material share of their balance-sheet capital from SDIRAs. Eliminating enforceability removes their business model in California.
3. Valuation duties. Custodians are required to obtain a Fair-Market-Value (FMV) each 12-31. An unenforceable note arguably has de minimis value, triggering markdowns that flow straight to investors’ IRA statements (and could affect required minimum distributions for inherited IRAs).
4. Loss of diversification. If CA junior liens disappear, SDIRAs that purposely balanced senior and mezzanine debt lose an asset class and will have to redeploy—usually into out-of-state seniors, equity, or syndications.
5. Litigation spill-over. Retroactive unwind language invites quiet-title suits that name all lienholders of record, including IRAs, forcing individual investors into costly defense simply to protect tax-advantaged status.

Stakeholder	Likely response
Hard-money lenders / note funds	Halt California junior-lien originations; pivot capital to other states; re-price seniors upward to offset risk
SDIRA custodians/administrators	Update asset-acceptance policies to reject CA junior liens; issue investor alerts; mark affected notes “0 or un-priced” on FMV reports
Existing SDIRA investors	Face sudden illiquidity and potential total write-downs; may need legal opinions to support any residual value
Real-estate market	Fewer HELOCs & seller-carrybacks → lower purchasing power for homeowners and investors; reduced deal flow for flippers who rely on gap financing
Title & servicers	Higher curative costs, new certification paperwork, and expanded E&O exposure

Action items for SDIRA-industry participants

Urgency	What to do
Immediately (this week)	• Use CMA/AAPL/RITA alerts to email or call your Assembly & Senate reps; cite the hidden insertion into AB 130.• Ask committee staff to remove the abandoned-debt sections or, at minimum, carve out commercial-purpose junior liens.
Next 30 days	• Inventory every CA junior lien on your custodial platform or in your portfolio.• Stress-test portfolio loss scenarios (assume 100 % impairment on seconds).
Before 12-31 FMV cycle	• Draft disclosure language describing the new statutory risk.• Consider third-party valuations reflecting “unenforceable” status.
Strategic	• Shift new SDIRA note investments to senior positions or other jurisdictions.• Evaluate equity-style alternatives (e.g., preferred equity, Delaware Statutory Trusts, or out-of-state rentals) to maintain yield targets without junior-lien risk.

Bottom line

The subordinate-debt provisions jammed into AB 130 (via SB 681’s text) effectively erase the security interest that makes a junior trust deed investable. If the trailer bill passes unchanged, California seconds will vanish overnight, wiping out a popular, high-yield asset class for SDIRAs, triggering markdowns on existing notes, and pushing retirement capital to friendlier states. Active lobbying this week is the industry’s last, best chance to stop or amend the language before it becomes law.

How to fight this – contact your Assembly member and State Senator— Today

🔧 How to Find Them:
Go to: https://findyourrep.legislature.ca.gov/
Enter your address to see both your Assembly-member and State Senator.

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This should not be construed as legal advice.  uDirect IRA Servivces, LLC is not a fiduciary and does not provide tax or legal advice.  This article is for informational purposes only.  Contact your own legal counsel to determine the impact on you and/or your business.