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The Big Banks Are Opposing C.A.R.'s Bill to Protect Borrowers

May 24th, 2010 10:22 AM by Lehel S.

 When is Enough, Enough?
The Big Banks Are Opposing C.A.R.'s Bill to Protect Borrowers
C.A.R. is sponsoring SB 1178 (Corbett) to extend anti-deficiency protections to homeowners who have refinanced "purchase money" loans and are now facing foreclosure. Most homeowners didn't know that when they refinanced they lost their legal protections, and now may be personally liable for the difference between the value of the foreclosed property and the amount owed to the lender.  SB 1178 will be voted on soon by the entire Senate.
One can't help but think, "When is enough, enough?" Banks have already foreclosed upon a family's home and now lenders can continue to hound them for additional payment. How much more money can today's families afford to pay when they've already lost their homes and most likely their jobs? Are they never to have the opportunity to begin again?
Please Call Senator Gloria Negrete McLeod TODAY!
Urge her to vote "Yes" on SB 1178.
Call 1-800-672-3135
Enter this PIN number to be connected to her office: 157505085
California has protected borrowers from so-called "deficiency" liability on their home mortgages since the 1930s, but the evolution of mortgage finance requires that the statute be updated.
Current law says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner's liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers who are brought down by financial crisis to get back on their feet.
Unfortunately, the 1930s law does not extend the protection for purchase money mortgages to loans that re-finance the original purchase debt -- even if the re-finance was only to gain a lower interest rate.  Recent years of low interest rates have induced tens of thousands of homeowners to refinance their mortgages, yet almost no one realized that by re-financing their mortgage to obtain a lower rate, they were forfeiting their protections. These borrowers became personally liable for the balance of the loan.
C.A.R. is Sponsoring SB 1178 because:      
SB 1178 is fair. Home buyers, and lenders, entered into the purchase with the idea that the mortgage would be non-recourse debt, and that the lender would look to the security (the house) itself to make good on the debt if the borrower cannot.  It meets the legitimate expectation of the borrowers, who have no idea that they are losing this protection by a refinance. Home owners didn't know that their refinance exposed them to personal liability, and new tax liability, on the note. It would be unfair to allow a lender, or someone that has purchased a note from a lender, to pursue the borrower beyond the value of the agreed upon security.
Lenders could pursue families to collect this "deficiency debt" years down the road. Under current law, lenders have up to ten years to collect on the additional debt after a judgment has been entered on the foreclosure. Years after a family has lost their home, they could find themselves in even more financial trouble. Lenders could even sell these accounts to aggressive collection agencies or even bundle them into securities. The end result would be banks who didn't lend responsibly in the first place coming after families for even more money that they don't have.
SB 1178 does NOT apply to "cash-out" refinances, unless the money was used to improve the home and it doesn't apply to HELOCs.
For More Information
Please contact DeAnn Kerr at deannk@car.org
Posted in:General
Posted by Lehel S. on May 24th, 2010 10:22 AM



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