A relief for homeowners with deficiency on their refinanced original mortgage loans and who are now facing foreclosure is one the way -
According to news just released by California Association of Realtors on August 19, 2010 that CA State Assembly passes SB 1178 protecting homeowners:
The bill essentially allows homeowners who defaulted on the mortgage that are part of refinance of the original purchase debt to limit their liability to the property itself; same as the treatment of the original 'purchase money' loan.
The bill moves to Government Schwarzenegetter for signature and if signed, will become effective June 2011.
This Only Makes Sense!
Following is the Press Release:
For release:
Thursday, Aug. 19, 2010
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.
Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with nearly 160,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
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Hi Sylvia, great post, it is good news for all troubled homeowners.
Thanks Dan! This only makes sense because it covers the refinanced loan, where the refinance is to get a lower interest rate rather cash out. They are the savvy ones and should not be penalized.
I hope more states take a look at this. You would think with NAR's support more state and their realtor(r) associations would be on top of this. It is the first time I have heard of this.
Yes, Joan, I agree, others should look at this also.
It has never made sense to me that the deficiencies can be forgiven when it's the original purchase money only but when people hold on to their properties for a long time and in the mean time, refinanced for lower interest rate that the new mortgage could not be forgiven. This is long time in coming..
I agree, refinancing the original purchase should definately fall into this catagory. How many flyers and solicitations did people get in the mail to lower their interest rate on their mortgage loan? I don't think the lending institutions addressed fully the consequences of deficiency judgements when extending these offers, do you? Kathy :)
yea!!! Unfortunately a client who closed earlier this year could have benefited from this, she only refinanced in order to get a lower interest rate.
Thanks Kathy! Totally agree! We are now seeing many people with the 1, 3, 5 year ARMs refinancing because of the historical low rates. They are the savvy ones but sure would not have suspected this when the time gets tough!
Sorry, Melanie! But I guess it's better late than never! At least we are going the right direction to protect consumers.