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Your Legal Corner - Client Alert Blog

New California Anti-Deficiency Protections For Refinanced Loans

Written By: Melissa C. Marsh, Esq., California Attorney, October 2012 Add to Favorites
California has enacted several anti-deficiency statutes to protect borrowers in real estate transactions. A “deficiency” is the liability of a borrower to the lender for the difference between the amount of the loan and the value of the real property. Existing California anti-deficiency laws protect a borrower on an original purchase-money loan (a loan acquired at the time the property was purchased and never refinanced) on an owner-occupied residential unit (up to four units) from being held personal liable to the lender for any deficiency that results from a short sale, or foreclosure. See, Civil Code of Procedures §580b and §580e. Under existing law, the anti-deficiency protection enjoyed by residential borrowers is strictly limited to the difference between the outstanding loan balance on an original purchase money loan and what the lender receives in a short sale, or foreclosure; existing anti-deficiency law does not afford any protections to residential homeowners who refinanced their original purchase money loan.

Effective January 1, 2013, a new California law will now protect borrowers on an owner-occupied residential property of not more than 4 units even if they refinance their original purchase money loan on or after January 1, 2013, so long as the homeowner does not "cash out" in the refinance. If the refinanced loan is purely a refinance of the original loan plus the cost of any attendant loan fees and related expenses, the borrower will now be afforded anti-deficiency protections. However, if the borrower pulls money out of the residential property to pay other bills, etc..), then the borrower would not qualify for California's anti-deficiency protections.

Unfortunately, the new anti-deficiency protections only apply to residential mortgage loans that are refinanced on or after January 1, 2013. As a result, homeowners who have refinanced their loans in the past will not be protected by the new legislation.

Tags: anti-deficiency, loan, refinanced loan
Posted In: Real Estate Reporter 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.