SB 1069 Protecting Borrowers from Recourse on Refinances after 1/1/2013

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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181
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San Diego, California
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On July 9[SUP]th[/SUP], 2012 Senate Bill No. 1069 was approved by the Governor (Published 11/12/2012) to protect borrowers refinancing purchase money loans from recourse. I have provided an explanation of recourse below and how it will affect your new refinance.

What does Recourse mean and how has it changed?
When you purchase a property with a mortgage the purchase money loan is considered NON- Recourse, meaning the lender cannot come after you for the difference between the sales price and the amount you owe on the property if you decide to sell your home. When you refinance a purchase money loan it would then turn the new loan into a recourse loan where the lender CAN come back after you. The reason why it would turn into a recourse loan is because the lender is entering into the transaction with the same risk as the borrower. If the loan is to default the lender is protected from future losses.

Many homeowners in the past have been hesitant to proceed with a new refinance, especially if they owe more than the home is worth due to the change from non-recourse to recourse. The good news is that this has changed and will become effective for ALL refinances that close on or after 1/1/2013.

How has this changed with Senate Bill 1069 (SB 1069)?
The new law protects the purchase money loans being refinanced after 1/1/2013 from turning into recourse. I have verified with my legal department that this will be put into effect after the New Year. There is a provision in the bill that states anything added to the principal balance from the refinance will be recourse. Meaning if you add a few thousand dollars for closing costs via your new refinance to the balance of your loan, that amount the lender can issue a deficiency judgment for. I have included the wording from the bill below:

No deficiency judgment shall lie in any event on any loan, refinance, or other credit transaction (collectively, a “credit transaction”) which is used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, except to the extent that in a credit transaction, the lender or creditor advances new principal (hereafter “new advance”) which is not applied to any obligation owed or to be owed under the purchase money loan, or to fees, costs, or related expenses of the credit transaction. Any new credit transaction shall be deemed to be a purchase money loan except as to the principal amount of any new advance.”

This is great news for the borrowers refinancing under the Home Affordable Refinance Program (HARP) because many of those homeowners are refinancing purchase money loans to take advantage of the new record low interest rates the market has to offer. When a borrower owes twice as much as the home is worth its nice knowing that under the new refinance you will still remain protected under the anti-deficiency law.

If you have any questions regarding the new bill SB 1069 please don’t hesitate to ask. This bill applies to all residential real estate finance transactions in the State of California. I have provided a link directly to the new bill below:

http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_1051-1100/sb_1069_bill_20120709_chaptered.pdf
 
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Evan Bedard

Call 1-800-779-4547
Loan Safe Mortgage
Aug 26, 2007
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48
San Diego, California
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Thanks for sharing such detailed information about Senate Bill No. 1069 with the community Erik! This is great news for any CA homeowner wishing to refinance their property in the near future.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,099
181
63
San Diego, California
www.loansreduced.com
Thanks for sharing such detailed information about Senate Bill No. 1069 with the community Erik! This is great news for any CA homeowner wishing to refinance their property in the near future.
Thank you Evan, that comment was much appreciated. Many homeowners have no idea what Recourse means, this bill that just passed is a huge victory for homeowners in California and I'm sure will help us on the road to recovery.

I've been hearing more and more news about HARP 3.0 coming out, including Obama's recent speech. He did say that the GSE's under HARP are FHA loans, I got a kick out of that when I heard it however he did mention that the program needs to open up to ALL borrowers. The bill is in the works as we speak and I will be updating our valuable LoanSafe members as soon as I hear anything as usual.