CA Senate Passes SB 1178, Extends Consumer Protection

Good news has come for consumers who refinanced their original mortgage loans and are presently facing foreclosure; the California Senate has approved SB 1178, which will extend anti-deficiency protection to these consumers.

The CA Association of Realtors (CAR), sponsors the consumer protection legislation. CAR is one of the largest state trade organizations in the country. Located in Los Angeles, they presently have over 160,000 members.

CAR’s President, Steve Goddard said recently, “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… 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. SB 1178 corrects this inequity and extends the same protections to consumers who refinance their home loans.”

SB 1178’s next stop is to the Assembly for further approval. CAR is hoping now for representatives to quicken the process and send the legislation to the Governor.

During foreclosure, if the purchaser fails to make a mortgage payment, the property is foreclosed and the title is usually obtained by the lender through a legal procedure. The property is sold to pay the mortgage while a deficiency between the sale price and the outstanding balance of the mortgage, is introduced.

Under most anti-deficiency laws, if mortgage is utilized for the purchase of a home, occupied by the purchaser, the purchaser will not be held responsible for any deficiency. The lender can, at this time, only recover the property and the proceeds of a subsequent sale. The purchaser does not pay any deficit between the sale proceeds and the outstanding loan balance. This allows the purchaser to walk away from an existing property, without owing a deficiency judgment amount.