A loophole in the law has allowed California homeowners, already facing the possibility of foreclosure, to be sued by their lender for the difference between the value of the foreclosed property and the outstanding balance on the mortgage loan.  SB 1178 would have closed that loophole and expanded anti-deficiency protections to consumers who have refinanced their original mortgage loans and now are facing foreclosure.

During the 2010 legislative session, C.A.R. sponsored SB 1178 and urged REALTORS® and their clients to call their senator to vote “yes” on SB 1178.  Although this bill was approved by Congress, it was ultimately vetoed by Gov. Schwarzenegger. 

Other articles about real estate in the Sacramento and Placerville, California regions at: www.sierraproperties.com

KEEP THIS IN MIND

• Currently, if a homeowner defaults on a mortgage used to purchase his or her home — known as a “purchase money mortgage” — the homeowner’s liability on the mortgage is limited to the property itself. Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate.

• Californians who refinance a property currently do not have protection if they default on a mortgage greater than the property’s value. Called a “deficiency” liability, under current California law, the lender can sue the former homeowner for the amount of the deficiency even after taking back the property.

• Recent years of low interest rates and aggressive marketing campaigns by lenders have induced tens of thousands to refinance mortgages. Few homeowners realized that by refinancing their mortgage, they were forfeiting their protections and now are personally liable.

• C.A.R. created a video detailing Senate Bill 1178. The video can be viewed here.

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http://losangeles.bizjournals.com/losangeles/stories/2010/05/17/daily8.html