BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1178|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1178
Author: Corbett (D)
Amended: 6/2/10
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-1, 3/23/10
AYES: Corbett, Hancock, Leno
NOES: Walters
NO VOTE RECORDED: Harman
SENATE FLOOR : 19-5, 5/28/10 (FAIL)
AYES: Alquist, Cedillo, Corbett, Correa, DeSaulnier,
Florez, Hancock, Leno, Liu, Lowenthal, Negrete McLeod,
Padilla, Pavley, Price, Romero, Simitian, Steinberg,
Wolk, Yee
NOES: Ashburn, Calderon, Hollingsworth, Strickland, Wright
NO VOTE RECORDED: Aanestad, Cogdill, Cox, Denham, Ducheny,
Dutton, Harman, Huff, Kehoe, Oropeza, Runner, Walters,
Wiggins, Wyland, Vacancy, Vacancy
SUBJECT : Real property: deficiency judgments
SOURCE : California Association of Realtors
DIGEST : This bill preserves a borrowers protection from
a deficiency judgment when loans are refinanced, but only
to the extent that the refinance is used to pay debt
incurred to acquire or construct the real property. The
provisions of this bill become operative on June 1, 2011.
CONTINUED
SB 1178
Page
2
Senate Floor Amendments of 5/13/10 clarify that the
borrower has the burden of proof to demonstrate the portion
of the refinance that was used to pay the debt incurred to
acquire, construct, or substantially improve the property.
The amendments also provide that the bill will become
operative on June 1, 2011, and apply only to actions filed
after its operative date.
ANALYSIS : Existing law provides, in part, that a secured
lender under a deed of trust or mortgage is prevented,
following a judicial foreclosure, from obtaining a
deficiency judgment against the borrower, but only to the
extent that the loan is a purchase money loan, i.e., the
financing is used to acquire the property. (Section 580b
of the Code of Civil Procedure)
This bill provides that a loan used to pay all or part of
the purchase price of real property or an estate for years
includes subsequent loans, mortgages, or deeds of trust
that refinance or modify the original loan, but only to the
extent that the subsequent loan was used to pay debt
incurred to acquire or construct the real property.
This bill provides that these provisions become operative
on June 1, 2011, and apply only to actions filed after its
operative date.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/2/10)
California Association of Realtors (source)
Center for Responsible Lending
OPPOSITION : (Verified 6/2/10)
California Bankers Association
California Credit Union League
California Financial Services Association
California Independent Bankers
California Mortgage Association
California Mortgage Bankers Association
Securities Industry and Financial Markets Association
SB 1178
Page
3
ARGUMENTS IN SUPPORT : The author writes: "Most
borrowers are generally unaware that refinancing their home
mortgage causes them to lose the anti-deficiency protection
of existing law. That anti-deficiency protection is
important because it protects the borrower under certain
circumstances if the lender forecloses on them. Senate
Bill 1178 seeks to narrowly address that issue by
preserving the anti-deficiency protection for borrowers if
they choose to refinance their home for purposes of
improvement. Borrowers who refinance for personal reasons,
such as buying a car, would not be protected."
The bill's sponsor, the California Association of Realtors,
also writes: "It is unfair to subject homeowners to new
personal liability merely because they refinanced the
original mortgage. Similarly, additional acquisition or
improvement debt that would have had the same treatment in
the first note should be similarly protected. The
unfairness is particularly acute in that almost no
borrowers understood the new liability that was being
acquired along with the refinance."
ARGUMENTS IN OPPOSITION : Opponents make a number of
arguments in opposition to this bill. First, they state
that the bill perpetuates the same over-leveraging by
borrowers that contributed to the existing mortgage "melt
down." Second, opponents assert that the bill extends
anti-deficiency protection to refinancing that exceeds the
original loan amount, which would "encourage borrowers to
strip equity from their homes possibly leaving them with
debt exceeding the value of their homes should property
values decline." Third, opponents argue that the bill
encourages borrowers to strategically default on a loan
they have the capacity to pay because the property has lost
value. Fourth, opponents state that it is unclear whether
the bill extends anti-deficiency protection to all proceeds
of a refinance or just the funds used to improve the
property. Fifth, opponents assert that the bill may
negatively impact short sales.
RJG:mw 6/2/10 Senate Floor Analyses
SB 1178
Page
4
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****