Purchase money loans in CA are those used by home buyers to finance original buying of the home.
Current CA anti-deficiency law protects a borrower from personal liability for the difference between the principal balance and what the lender receives at foreclosure if the loan is a “purchase money loan” secured by an owner-occupied property with one-to-four residential units.
Many homeowners have refinanced their home loans recently without understanding whether they lose anti-deficiency protection for the “purchase money loan”.
New California law effective next year on January 1, 2013, will protect homeowners who default on their refinance of “purchase money loans” – from personal liability for deficiency following foreclosure.
The new law – CA Senate Bill 1069 – extends that anti-deficiency protection to include any loan used to refinance the “purchase money loan”, plus any loan fees, costs, and related expenses for the refinance.
However, this new CA anti-deficiency protection:
- Does not extend to any “cash out” in a refinance – when the lender advances new principal not applied to any obligation owed under the purchase money loan.
- Will not impact the other anti-deficiency protections for non-judicial foreclosures (or trustee’s sales) and seller financing.
- Only applies to refinance loans or other credit transactions used to refinance a “purchase money loan” – or subsequent refinances of a “purchase money loan”.
- Only applies to loans executed on or after January 1, 2013
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