Homeowners who have resisted refinancing despite the low interest rates for fear of risking personal liability in the event of foreclosure will soon have cause to celebrate. Starting January 1, 2013, a new law enacted in California will protect homeowners who default on their refinance loans from personal liability for any deficiency following a foreclosure.
Current anti-deficiency law protects a borrower from personal liability for the difference between the principal balance on the loan and what a lender receives at foreclosure but only to the extent the loan is a purchase money loan (purchase money loan is the initial loan taken out to purchase a home).
The new law, Senate Bill 1069, which amends Section 580b of the Code of Civil Procedure, extends the anti-deficiency protection to refinance loans, with the exception of any “cash out” refinances. This means that if you refinance an existing loan where the loan was used solely for purchasing your home or to pay off a loan that was used solely for purchasing your home you are protected from personal liability for any deficiency arising from a foreclosure. Any “cash out” or advance by a lender of new principal that was not used to purchase your home or to satisfy a purchase money loan would still be subject to a deficiency judgment.
Please note this law only applies to refinance loans executed on or after January 1, 2013. So for those who have yet to refinance or for those who have already refinanced their purchase money loan, here is reason to refinance again after the New Year.
For the full text of Senate Bill 1069, click here. (link click here to http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1069