David Ormonde's Central Valley Real Estate & Dinner Blog

Everyone knows that when you loose your home through foreclosure the lender cannot come back on you for a deficiency (the amount of money you owed, but did not get paid to the lender because the property was worth less than what you owed).  Well, that may not be exactly correct if you have refinanced after you bought the house way back when.  Until now there was the possibility of the lender coming back to collect the amount of money you owed but were not able to pay with the foreclosure sale (the deficiency) if you had refinanced the loan after the original acquisition, even if you did not take any cash out of the refinance. 

If Senante Bill 1178 becomes law that may change and prevent the lender of your refinancing  from collecting on any deficiency in the foreclosure.  Existing law provides that no deficiency judgment exists if essentially,  the money you borrowed was used to purchase.  This bill would provide that a loan used to pay all or part of the purchase price of real property or an estate for years includes subsequent loans, mortgages, or deeds of trust that refinance or modify the original loan, but only to the extent that the subsequent loan was used to pay debt incurred to purchase the real property. The bill would become operative on June 1, 2011, and would apply only to actions filed after its operative date. 

This new bill, if passed into law would improve the lives of so many people fallen victum to predatory lending and unscrupulous lenders who led borrowers down that rose path of refinancing, “because it made sense and would save them thousands of dollars in the long run”.