Previous Fresno homeowners could owe ‘tens of thousands of dollars’ to their lenders
Since the 1930s, California law has protected California homeowners from thousands of dollars in liability if the homeowner should default on their original mortgage loan. However, if you have lost your home to foreclosure in California you could be in danger of a large lawsuit from your previous lender for the deficiency amount because of a loophole in the current law.
HERE’S THE DANGER
The danger lies in whether the foreclosed upon person still has their original mortgage loan or have they refinanced that original mortgage loan at some point.
But if consumers refinanced their original mortgage — even for a lower interest rate or to finance home improvements — and fail to make payments leading to foreclosure, lenders can sue for the difference between the money owed and the value of the property, according to the California Association of Realtors.
THE NUMBERS ARE STAGGERING
Think of the number of California foreclosures in recent years. How many of those individuals still have their original mortgage vs. how many refinanced along the way to lock in a lower interest rate or refinanced to fund a home improvement project or refinanced to pay down consumer debt.
“Most homeowners have no idea they are personally liable,” CAR president Steve Goddard said in a news release Tuesday. “Foreclosure is difficult enough on a family. Getting sued for tens of thousands of dollars after losing your home is much worse.”
LEGISLATION TO WATCH
The California Association of Realtors has proposed new legislation to fix the current, little known loophole. Watch for Senate Bill 1178 by state Sen. Ellen Corbett, a Democrat from Los Angeles.
For more information, watch this video.
