CAR Sponsors Anti-deficiency Protection for Consumers
Many homeowners are facing foreclosure and attempting a short sale of their home to reduce the damage to their credit. Foreclosure will result in four years to gain back credit recovery compared to two years after a short sale. Currently, California law specifies if the homeowner defaults on their mortgage loan that was used to purchase their home, "purchase money loan", the liability is limited to the value of the home only. Therefore if the home forecloses, the lender cannot demand any more from the homeowner other than the home itself. However, should the homeowner refinance the original loan, the law no longer applies. Thus, if the home forecloses on a refinanced loan or a line of credit used to improve the home, the lender can sue the homeowner for the balance (deficiency) of the loan amount greater than the value of the property. For example, if the homeowner's refinanced mortgage was $350,000 and the home foreclosed at a value of $250,000, the former homowner could be liable for the $100,000 deficiency. This is also true on a short sale with a refinanced mortgage or line of credit used to improve the property.
The California Association of Realtors is sponsoring Senate Bill 1178 by State Senator Ellen Corbett (D-San Leandro) which will extend anti-deficiency protecton for consumers who have refinanced their original purchase money loans and now facing foreclosure. For more information on the bill, C.A.R has created a video for more informaton on the Bill.