There’s been a lot of cheering lately for the news that on June 3rd, the California Senate passed SB 1178 that would extend deficiency judgment protection to include refinances. Under existing California law, a homeowner generally has no liability to repay the lender for any deficiency between the value of a foreclosed property and the amount owed to the lender. This “anti-deficiency” law only applies to owner-occupant loans obtained to purchase a 1-4 unit property.  SB 1178 extends this anti-deficiency protection to any refinance of the original purchase money debt.  Whether this protection will include “cash-out refinances” is questionable although I understand that the Bill’s proponent, California Association of Realtors, is seeking that result.

What has gotten lost in all the cheering is the reality that SB 1178 will not go into effect until June 11, 2011. It is intended to stop lenders from bringing deficiency lawsuits against borrowers after that date. Nothing stops lenders from bringing deficiency actions before that date where they would have such a right under current law. In most circumstances, these would be lawsuits brought by “junior” lenders whose security gets wiped out by a senior lender’s foreclosure.  A lot of these are being filed right now.

A lot could change before the final form of this measure gets through the Legislature and is signed by the Governor. Presently the Bill is in House committees and the next hearing will be late this month.  Various challenges and clarifications are being discussed and there is no certainty at this point when or if this Bill will get passed or what a final form will look like.  We’ll keep you informed as it progresses.

Meanwhile, if you are facing a lender lawsuit or if you have specific questions about your liability, short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.