California's legislature has recently passed SB 1178 (Corbett), C.A.R.'s sponsored bill to extend anti-deficiency protection to homeowners who have refinanced. C.A.R. is asking all California REALTORS® to contact Governor Schwarzenegger to urge him to sign SB 1178.
Time is short! The Governor may make the decision at any time!
C.A.R. is sponsoring SB 1178 (Corbett) to better protect homeowners going through foreclosure. SB 1178 will ensure that homeowners keep the same "anti-deficiency" protections they have in the original loan after the loan has been refinanced.
California's anti-deficiency protection for "purchase money" mortgages says essentially that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner's liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers brought down by financial crisis to get back on their feet.
Unfortunately, the 1930s law hasn't kept up with current times. Current law doesn't apply to loans used to refinance the original purchase debt, even if the refinance was only to gain a lower interest rate. Recent years of low interest rates have induced tens of thousands of homeowners to refinance their mortgages. During those years, almost no one realized that refinancing their mortgage to obtain a lower rate, they were forfeiting their protections and were becoming personally liable on the new note.
SB 1178 will correct this injustice by extending anti-deficiency protections to those who have refinanced their loans.