California State Assembly Passes S.B. 1178 to Protect Homeowners
California State Assembly Passes S.B. 1178 to Protect Homeowners 08/20/10
The California State Assembly this week approved SB 1178 (D-Corbett) by a 49 to 14 vote, extending anti-deficiency protection for consumers who have refinanced their original mortgage loans and now are facing foreclosure. The California Association of Realtors (CAR) is the sponsor of the consumer-protection legislation.
Under existing law, if a homeowner defaults on a mortgage used to purchase a home — commonly referred to as a “purchase money mortgage” — the homeowner’s liability on the mortgage is limited to the property itself. However, homeowners who refinanced the original purchase debt, even if only to obtain a lower interest rate, were not extended the same protections. SB 1178 corrects this unfairness and extends the same protections to consumers who refinance their home loans.
“Cash-out” debt for home improvement or consumer expenses is not protected by SB 1178. Similarly, additional new debt secured by the home, such as a home improvement loan, is not protected–only original acquisition debt.
“Today’s vote was a victory for homeowners in California, but the fight is not yet finished,” said C.A.R. President Steve Goddard. “We are urging Gov. Schwarzenegger to swiftly sign into law this crucial piece of legislation. Passage of SB 1178 will ensure lenders underwrite refinance loans at least as carefully as purchase money mortgages and will provide much-needed consumer protection.”
SB 1178 now moves to Gov. Schwarzenegger for his signature. If signed, SB 1178 will become effective June 2011.