Posted by: Catherine | August 19, 2010

New Anti-Deficiency Rules come closer to reality in California

Update 10/1/10 – the Governor has VETOED this bill.

Check out the press release from the California Association of Realtors.

This is good news from distressed homeowners facing foreclosure who have refinanced their loans.  With your original purchase money loan (the first , original loan you used to buy your home) you had very important “anti-deficiency” protections. This means that the lender’s recourse if you default is the property itself, that’s it, they can’t sue you for the deficiency – they can just take your house as their one and only action against you. However, if you had refinanced, you lose that very important protection.   This SB 1178 closes this loophole in California Law.

However, be aware that these anti-deficiency rules/laws may not apply to your situation in a short sale – read this entry at the foreclosure truth blog to learn more: SB 1178 to protect borrower . . .

SB 1178 passed in the California State Assembly today.  It now goes to the Governor’s desk for signature. It would be effective June 2011.  Here’s the press release:

California State Assembly passes SB 1178 protecting homeowners

California State Assembly passes SB 1178 protecting homeowners

Measure protecting consumers from overreaching lenders now goes to governor’s desk for signature

LOS ANGELES (Aug. 19) – The California State Assembly today approved SB 1178 (D-Corbett) by a 49 to 14 vote, extending anti-deficiency protection for consumers who have refinanced their original mortgage loans and now are facing foreclosure. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is the sponsor of the consumer-protection legislation.

Under existing law, if a homeowner defaults on a mortgage used to purchase a home—commonly referred to as a “purchase money mortgage”—the homeowner’s liability on the mortgage is limited to the property itself.  However, homeowners who refinanced the original purchase debt, even if only to obtain a lower interest rate, were not extended the same protections.  SB 1178 corrects this unfairness and extends the same protections to consumers who refinance their home loans.

“Cash-out” debt for home improvement or consumer expenses is not protected by SB 1178.  Similarly, additional new debt secured by the home, such as a home improvement loan, is not protected—only original acquisition debt.

“Today’s vote was a victory for homeowners in California, but the fight is not yet finished,” said C.A.R. President Steve Goddard.  “We are urging Gov. Schwarzenegger to swiftly sign into law this crucial piece of legislation.  Passage of SB 1178 will ensure lenders underwrite refinance loans at least as carefully as purchase money mortgages and will provide much-needed consumer protection.”

SB 1178 now moves to Gov. Schwarzenegger for his signature.  If signed, SB 1178 will become effective June 2011.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: