Starting on January 1, 2013, there will be a new California law that will protect borrowers who default on their refinance loans from personal liability for any deficiency following foreclosure.
As you may already know, the existing anti-deficiency law (SB 458) protects a borrower from personal liability for the difference between the principal balance and what the lender receives at foreclosure if the loan is a purchase money loan secured by an owner-occupied property with one-to-four residential units.
According to the California Association of Realtors®, the new law (Senate Bill 1069), “extends that anti-deficiency protection to include any loan used to refinance the purchase money loan, plus any loan fees, costs, and related expenses for the refinance. The anti-deficiency protection, however, does not extend to any ‘cash out’ in a refinance, which is when the lender advances new principal not applied to any obligation owed under the purchase money loan. This new law does not affect the other anti-deficiency protections for non-judicial foreclosures (or trustee’s sales) and seller financing.”
Additionally, this new law only applies to refis or other credit transactions used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, that are executed on or after January 1, 2013. While that date may still be a few months away, you may want to put this information in your back pocket. Only the Magic 8-Ball knows what changes may be forthcoming in this wild and wacky real estate market.
In addition to Senate Bill 1069, there are other state and federal programs available that will benefit struggling borrowers. Here are articles about a few of these programs. Check ‘em out:
Anti-Deficiency Protection – Senate Bill 458
Tax Implications of a Short Sale
Home Affordable Foreclosure Alternatives
Independent Foreclosure Review
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