10/02/2010 Note: It is our understanding that Governor Schwarzenegger DID NOT sign this bill which would have provided some needed relief for San Diego foreclosed homeowners who refinanced out of their original mortgages.
I’m not here to argue the merits of letting the San Diego real estate market with its short sales and foreclosures flush itself out, or artificially pumping it up with credits and protections.
What we should all be clamoring for, though, is closing a loophole in California state law that allows banks to sue foreclosed borrowers for the difference between the mortgage balance and the home’s ultimate sales price–simply because the home was refinanced.
And this refinancing so often took place at the lender’s own urging. (Remember all those dinner hour calls and junk mail encouraging us all to refinance?)
Most homebuyers and those refinancing their mortgages were never notified that if they refinanced their original purchase money loan, they would lose trust deed protections. I’m not an attorney, but if the home is a primary residence and is still financed with original purchase money mortgage, all the lender can take in the event of default is the property itself.
But once the home has been refinanced and should the homeowner default on the loan(s), the lender can later sue the foreclosed homeowner for losses incurred by the bank.
To protect California homeowners, the California Association of Realtors is asking everyone to email Governor Schwarzenegger to sign SB 1178 to enact reasonable borrow protections. To do so, go to
- enter your email address and name as directed
- make any changes you wish to the letter
- hit SEND button on right.
Big banks, as might be expected, are fighting SB1178 so they can continue this predatory behavior.