For many California homeowners, foreclosure has become a serious worry. Thanks to a significant refinance mortgage loophole in California’s state law, lenders are able to sue homeowners even once they have taken back the property.
Currently, there is not any protection for those who have refinanced their properties if the borrower fails to make payments on any mortgage that is worth more than the value of the property. This is called a “deficiency” liability, and as of now, lenders are allowed to sue borrowers for the full amount of the deficiency.
Even if their property has been taken away, homeowners in California can still be sued. This is causing concern for many organizations and consumers.
The California Association of Realtors is trying to raise awareness of the issue, and has sponsored Senate Bill 1178 to terminate the loophole. The president of the association, Steve Goddard, says that many homeowners are not aware that they are “personally liable”, and he warns that getting sued after foreclosure occurs can cause serious financial trouble for many families.
In the past, California has helped homeowners by protecting them from the deficiency liability by ensuring that the liability on their home after a default will be no more than the actual property that the mortgage has been taken out on. However, state law can currently not offer this protection for those who have taken out loans that refinance the original debt.
For many homeowners, this might mean that they will be sued by their lenders after foreclosure.
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