California fires destroyed his home, then his lender destroyed his credit. How forbearance is burning victims

Neil Smith lost everything when the California Eaton Fire destroyed his home in January 2025.

With this in mind, you can imagine his relief when Smith learned about a state-led initiative promising a 90-day mortgage forbearance without penalties.

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“I don’t need any more stress, and it was presented to me as an option,” Smith told NBC News. “However, if I had to do it again, I wouldn’t go anywhere near it.”

What Smith thought would give him some financial breathing room has instead put him in a financial chokehold. The state’s agreement says that when the 90-day forbearance ends, homeowners should be offered repayment options without being required to make an immediate lump-sum “balloon payment.” Smith was also told his credit score wouldn’t take a hit.

But Smith says both of those promises were broken, and he’s not the only one.

'The whole thing is like going around with a begging bowl'

Bill AB 238 was designed to allow owners of properties in California with four or fewer residential units to hit pause on their mortgage payments for 90 days. After that period, the borrower can request to have the forbearance extended in 90-day segments for up to one year.

“These financial protections will enable residents to concentrate on taking care of their immediate needs rather than worrying about paying their mortgage bills,” California Governor Gavin Newsom said in a news release.

Under the bill, lenders are not permitted to tag on late fees, raise interest rates or start foreclosure proceedings during the forbearance period. Lenders are also required to keep credit reports clean if homeowners were up to date with their payments before entering the program.

The bill was meant to give homeowners some breathing room without wrecking their financial future, but attorney Aimee Williams — whose firm is representing Smith and others — says lenders aren’t holding up their end of the bargain.

“Four hundred mortgage servicers signed up to abide by these bare minimum standards for mortgage relief,” Williams told NBC News. “Homeowners are instead being offered the complete opposite.”

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Williams says her clients are being told to pay up or risk foreclosure.

"They want the whole amount due, and until you pay it off, it’s still going to have an adverse effect on your credit," said Smith. "And I’m just going… 'unbelievable.'"

Altadena resident Lisa Mason says it all began for her when her mortgage provider enrolled her in the forbearance initiative, but Mason claims she didn’t give her consent and was mistakenly enrolled by her provider. This resulted in her automatic payments being stopped and her credit score dropping by 120 points.

“I really think they want me out, they want me to give up… so that they can take the property or that I’ll sell it,” said Mason.

Neither Mason’s nor Smith’s mortgage providers responded to NBC News's requests for comment. Meanwhile, Smith says this ordeal has made securing new loans nearly impossible.

“You don’t have as many options,” he said. “The whole thing is like walking around with a begging bowl.”

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What can California homeowners do?

According to NBC News, the Governor’s office says it's proud of the agreement with lenders and that it’s not acceptable for lenders to break their commitments. The state agency overseeing financial institutions says it has received more than 100 complaints and resolved most of them. However, the homeowners that NBC News spoke with are still awaiting resolution.

Those homeowners may have legal recourse, depending on their situation, but they’d be well advised to seek professional advice on whether or not they have a case. Some states, like California, have homeowner protections under the California’s Homeowner Bill of Rights, which includes safeguards like notice requirements before filing a Notice of Default.

Homeowners affected by this issue need to make sure they do what they can to protect themselves in the meantime. This can include:

Documenting everything: Keep every letter, email and statement during your correspondence with your mortgage lender Filing a complaint: Inform the Consumer Financial Protection Bureau about your issue and federal regulators can investigate Seeking legal aid: Get assistance from nonprofit housing rights organizations and foreclosure defense attorneys Exploring other options: Alternative settlements like loan modifications or repayment plans can help you avoid foreclosure risks

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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