Bill To Provide Borrowers Deficiency Liability Protections
INDUSTRY NEWS, REAL ESTATE LEGISLATION, SHASTA COUNTY, SHORT SALES, TIPS FOR SELLERS
May 24th, 2010
Many homeowners are not aware of a loophole that allows banks to pursue certain borrowers for any cash loss they suffer as a result of a short sale or foreclosure. The existing law, which was passed in the 1930’s, protects homeowners from deficiency liability if the loan was used to purchase the home. The problem arises when the loan is refinanced. The protection does not apply to purchase money loans that are later refinanced, even if doing so allowed the borrower to benefitfrom a lower interest rate.
Senate Bill 1178, authored by Senator Ellen Corbett, does not protect borrowers that used cash-out refinances or equity lines to pay bills or buy cars, boats, RV’s or stock investments. Only borrowers that used cash generated from a refinance to improve their primary home would be protected by this bill if it passes. Most borrowers were unaware that a refinance caused a forfeiture of this liability protection. In legal terminology, purchase loans are non-recourse loans while refinanced loans are recourse loans.
Banks doing business in California understand that the property is the security for the loan, not the borrower. Purchasers that later refinanced had no idea they were losing this protection exposing themselves to personal liability and even new tax liability. Lenders can pursue the loss for up to ten years after a foreclosure or short sale. They can sell the accounts to aggressive collection agencies or bundle them as securities. This allows banks, which created this mess to begin with, to add insult to injury by chasing families that have already lost their home for money they don’t have.
Call your local State Senator and ask him or her to vote yes on SB 1178. In our area, call Senator Sam Aanestad at 530-225-3142.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
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