Industry NewsMortgage

California may restrict lender claims over refis

Realtors fear homebuyer pool will shrink under current law

California lawmakers are weighing legislation that would provide some protection from deficiency judgments for borrowers who refinanced their mortgages.California already prohibits lenders from pursuing deficiency judgments against homeowners who default on their original purchase mortgage. Lenders can foreclose on the borrower's home and attempt to recoup their losses by selling the property securing the loan. But if the sale doesn't cover the amount owed, lenders can't go to court to force borrowers to make up the difference.The law barring deficiency judgments does not apply to refinancings, however, which were often used by homeowners during the boom to convert equity in their homes into cash.SB 1178, which passed the state Senate in a 30-4 vote on June 3, would extend protection from deficiency judgments to homeowners who have refinanced, but only up to the amount of their original loan.In other words, if the original mortgage was $300,000, and the homeowner refinanced and default...

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