Thursday, September 13, 2012

New CA Anti-Deficiency Law to Protect Homeowners Who Refinance Purchase Money Loans

Purchase money loans

Purchase money loans in CA are those used by home buyers to finance original buying of the home.

Current CA anti-deficiency law 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.

Many homeowners have refinanced their home loans recently without understanding whether they lose anti-deficiency protection for the "purchase money loan".

New California law effective next year on January 1, 2013, will protect homeowners who default on their refinance of "purchase money loans" - from personal liability for deficiency following foreclosure.

The new law - CA 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.

However, this new CA anti-deficiency protection:

  • Does not extend to any "cash out" in a refinance - when the lender advances new principal not applied to any obligation owed under the purchase money loan.
  • Will not impact the other anti-deficiency protections for non-judicial foreclosures (or trustee's sales) and seller financing.
  • Only applies to refinance loans or other credit transactions used to refinance a "purchase money loan" - or subsequent refinances of a "purchase money loan".
  • Only applies to loans executed on or after January 1, 2013

Click here to see full text of this new California law - CA SB 1069.



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This is for information only and is not the providing of mortgage legal or tax services.

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