BILL ANALYSIS �
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1069|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1069
Author: Corbett (D)
Amended: 3/15/12
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 5/1/12
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SUBJECT : Mortgages: deficiency judgments
SOURCE : Insolvency Law Committee of the Business Law
Section of
the State Bar
DIGEST : This bill prohibits a lender from receiving a
deficiency judgment for any loan, refinance, or other
credit transaction that is used to refinance a purchase
money loan, applies only to credit transactions occurring
on or after January 1, 2013, and does not apply to the
principal amount of any new advance, as specified.
ANALYSIS : Existing federal tax law generally allows a
deduction for all interest paid or accrued within the
taxable year on indebtedness. Existing law limits that
deduction for "personal interest" paid or accrued, with the
specific exceptions, including any qualified residence
interest. (26 U.S.C. 163.)
Existing federal tax law defines qualified residence
interest as any interest that is paid or accrued during the
CONTINUED
SB 1069
Page
2
taxable year on either: (1) acquisition indebtedness; or
(2) home equity indebtedness. Acquisition indebtedness is
defined as indebtedness that is incurred in acquiring,
constructing, or substantially improving a qualified
residence of the taxpayer, and that is secured by that
residence. That term also includes any indebtedness
secured by such residence resulting from the refinancing of
indebtedness, as specified, but only to the extent the
amount of the indebtedness resulting from such refinancing
does not exceed the amount of the refinanced indebtedness.
(26 U.S.C. 163(h)(3)(B).)
Existing law 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 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. (Code Civ. Proc. Sec.
580a.)
Existing law 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 loans that were used to pay all or a part of the
purchase price of the dwelling that was occupied by the
purchaser. (Code Civ. Proc. Sec. 580b.)
This bill applies the above deficiency judgment prohibition
to any loan, refinance, or other credit transaction that is
used to refinance a purchase money loan, as defined, except
to the extent that the lender or creditor advances new
principal, as specified.
This bill provides that any new credit transaction shall be
deemed to be a purchase money loan except as to the
principal amount of any new advance. Payment of principal
shall be deemed to be applied first to the principal
balance of the purchase money loan and then to the
principal balance of any new advance; interest payments
shall be applied to any interest due and owing.
SB 1069
Page
3
This bill applies the above provisions only to credit
transactions executed on or after January 1, 2013.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/2/12)
Insolvency Law Committee of the Business Law Section of the
State Bar (source)
California Association of Realtors
California Bankers Association
Center for Responsible Lending
ARGUMENTS IN SUPPORT : According to the author, "Under
current state law, lenders may seek a deficiency judgment
in a judicial foreclosure for a non-purchase money loan.
Refinanced loans are considered non-purchase. It is unfair
to subject homeowners to new personal liability merely
because they refinanced the original mortgage. California
has extended protection from deficiency judgments to
homeowners in the event of a short sale with the enactment
of Senate Bill 458 (Corbett, 2011) and Senate Bill 931
(Ducheny, 2010). The unfairness is particularly acute in
that almost no borrowers understood the new liability that
was being acquired along with the refinance."
The author further notes that, "�a]ccording to recent news
by the Mortgage Bankers Association �MBA], applications for
refinances continue to steadily increase as homeowners
attempt to take �advantage] of lower interest rates. . . .
Data from MBA also notes that the refinanced loans continue
to make up a significant, if not majority, of mortgage
originations nationwide. Indeed, over two-thirds of
mortgage originations derived from refinances, accounting
for about $1.7 trillion of total mortgages since 2010."
RJG:do 5/3/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
SB 1069
Page
4