BILL ANALYSIS Ó
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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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