BILL ANALYSIS                                                                                                                                                                                                    



                                                                            



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          |SENATE RULES COMMITTEE            |                        SB 426|
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                                    THIRD READING


          Bill No:  SB 426
          Author:   Corbett (D)
          Amended:  4/1/13
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  5-2, 4/23/13
          AYES:  Evans, Corbett, Jackson, Leno, Monning
          NOES:  Walters, Anderson


           SUBJECT  :    Civil procedure:  deficiency judgments

           SOURCE  :     California Reinvestment Coalition
                      Housing and Economic Rights Advocates


           DIGEST  :    This bill prohibits a deficiency from being owed or  
          collected following a judicial foreclosure with respect to the  
          enumerated circumstances; prohibits a deficiency from being owed  
          or collected for a deficiency on a note secured by a deed of  
          trust or mortgage on real property or an estate for years  
          therein, as specified; and makes nonsubstantive changes to these  
          provisions.

           ANALYSIS  :    

          Existing law:

          1. Provides for procedures by which a money judgment (a  
             "deficiency judgment") can be sought for the balance due on  
             an obligation for the payment for which a deed of trust or  
             mortgage was given as security.  A court may render judgment  
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             for not more than the amount by which the entire amount of  
             indebtedness due at the time of sale exceeded the fair market  
             value of the real property or interest therein sold at the  
             time of sale, with interest from the date of sale, as  
             specified.  

          2. Prohibits a deficiency judgment in either of the following  
             circumstances:  (a) after a sale of real property or an  
             estate for years therein for failure of the purchaser to  
             complete his or her contract of sale; or (b) under a deed of  
             trust or mortgage given to the vendor to secure payment of  
             the balance of the purchase price of the real property or  
             estate for years.  

          3. Prohibits a deficiency judgment after the sale of real  
             property under a deed of trust or mortgage on a dwelling for  
             not more than four families.  That provision applies to  
             "purchase money" loans that were used to pay all or a part of  
             the purchase price of the dwelling that was occupied by the  
             purchaser.

          4. Prohibits a deficiency judgment on any loan, refinance, or  
             other credit transaction that is used to refinance a purchase  
             money loan, or subsequently refinances a purchase money loan,  
             except to the extent that the lender or creditor advances new  
             principal, as specified.

          5. Prohibits a deficiency judgment on a note secured by a deed  
             of trust or mortgage in any case in which the property has  
             been sold by the mortgagee or trustee (lender) under a power  
             of sale contained in the mortgage or deed of trust.

          This bill, in each of the above listed situations where a  
          deficiency judgment is prohibited, additionally prohibits a  
          deficiency from being owed or collected.

           Background
           
          California has several anti-deficiency statutes that seek to  
          protect individuals from a "deficiency judgment" when their home  
          is sold for less than is owed on their loan.  Absent those  
          statutes, a lender who suffers a loss as the result of the sale  
          (in other words, selling the property for less than the balance  
          of the loan) could potentially bring an action seeking recovery  

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          of the amount lost, the "deficiency," as the result of the sale.  
           To protect homeowners, one section bars a lender from seeking a  
          judgment for any deficiency following a non-judicial  
          foreclosure.  That protection is limited to the specific note  
          that was foreclosed upon.  
           
          Another section prohibits a deficiency judgment for loans that  
          were used to "pay all or part of the purchase price."  (Those  
          loans are often referred to as "purchase money.")  That  
          protection, which applies after sale of the property, is limited  
          to loans securing owner-occupied dwellings of not more than four  
          families.  SB 1069 (Corbett, Chapter 64, Statutes of 2012)  
          amended that provision to provide that a "purchase money" loan  
          does not lose its anti-deficiency protection when refinanced.   
          That additional protection applies only to refinances occurring  
          after January 1, 2013 and does not apply to any additional  
          principal pulled out in the refinance.

           Prior legislation
           
          SB 1069 (Corbett, Chapter 64, Statutes of 2012) See Background. 

          SB 458 (Corbett, Chapter 82, Statutes of 2011), expanded  
          anti-deficiency protection for short sales.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  4/25/13)

          California Reinvestment Coalition (co-source)
          Housing and Economic Rights Advocates (co-source)
          California Association of Realtors
          Center for Responsible Lending

           ARGUMENTS IN SUPPORT  :    According to author's office, an  
          anti-deficiency protection for residential borrowers is a  
          longstanding policy in California.  California law protects  
          borrowers against deficiency judgments in specified situations,  
          including after short sales and non-judicial foreclosures and  
          when a loan was used to purchase the property.  However, two  
          important anti-deficiency provisions do not include explicit  
          language regarding the status of the debts following  
          foreclosure.  Some creditors and debt collectors continue to  

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          contact and even harass borrowers after foreclosure in order to  
          collect the debts by non-judicial means, maintaining that the  
          anti-deficiency statutes leave the debt due and owing even if it  
          cannot be collected in court.  These creditors and debt  
          collectors also continue to report the debts as delinquent on  
          borrowers' credit reports, making it more difficult for  
          borrowers to rebuild their credit after a foreclosure.


          AL:d  4/26/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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