California Senate Bill 1178 Passes the Senate

The good news in California last week was Senate Bill 1178 passed the Senate. Now it goes on to the Assembly and, if passed, will land on the Governor’s desk for signature. Why this bill wasn’t introduced years ago is beyond me. What it does is protect sellers of short sales and those facing foreclosure against deficiency judgments after a refinance. It applies only to those who did not take out any cash.Lots of buyers in California who ended up with high interest rate loans or adjustable rate mortgages will do a refinance when rates drop. Well, in California, when a homeowner refinances a loan, that loan now changes from purchase money into hard money. And hard money loans become subject to deficiency judgments if the borrower defaults. Very few sellers realize the consequences of a refinance because they are rarely informed or it’s not explained in a way they understand.

The present version of SB 1178 applies to transactions on or after June 1, 2011. It does not offer protection to homeowners who pulled out cash from the refinance.