| The California Association of REALTORS (C.A.R.) | | | | homeowners who have refinanced purchase |
| declared "victory" upon the Senate passage of SB | | | | money loans and are now facing foreclosure. |
| 1178 on June 3, 2010 (the bill now moves to the | | | | What is left unsaid from the announcement is |
| Assembly for approval). Should this bill become | | | | that the protections in the proposed law are |
| law, California real estate agents should be | | | | limited to the amount of the original purchase |
| cautioned to read the legislation very carefully | | | | money loan. Therefore, borrowers are still |
| because the protections afforded will be very | | | | exposed to deficiency claims for any "cash-out" |
| narrow in scope. | | | | portion of the refinancing. It is this cash out |
| We already know that California Code of Civil | | | | portion of the refinancing that is creating the |
| Procedure (CCP) Section 580b prohibits a lender | | | | extensive deficiency exposure faced by many |
| from seeking a deficiency judgment after the | | | | California borrowers. |
| foreclosure on a "purchase money" loan. A | | | | If this bill is signed into law by the Governor, we |
| purchase money loan is a loan that was used to | | | | should be careful not to overstate of the victory, |
| acquire an owner-occupied residence. Most | | | | as was done upon the passage of the Mortgage |
| borrowers do not understand that when they | | | | Forgiveness Debt Relief Act of 2007 (borrowers |
| refinance a purchase money loan, even if just to | | | | were being told that all cancellation of debt was |
| get a better rate and term, they lose the | | | | tax free - this is simply not the case). While SB |
| anti-deficiency protections of CCP 580b. | | | | 1178 will produce a very good law, it will not be a |
| As C.A.R. explains in its "RED ALERT" | | | | panacea for the aftermath of California's refinance |
| announcement, SB 1178 is meant to extend the | | | | boom. |
| anti-deficiency protections found in 580b to | | | | |