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State Lawmakers Considering Bill Insulating Homeowners From Deficiency Judgments

June 29, 2010

Our Moreno Valley loan modification attorneys wrote last month about the threat of deficiency judgments against borrowers who go into foreclosure. Deficiency judgments are court orders to former homeowners who went into foreclosure, requiring them to pay the unpaid balance on their mortgages. They are obtained when the lender sues the foreclosed homeowner -- a practice that was once rare, but is growing thanks to the flood of foreclosures and the perception that some people who walk away or short-sell can afford to keep paying. California law partially protects borrowers from deficiency judgments, but allows the judgments against any loan that's been altered, such as with a refinance or HELOC, or went into the relatively rare judicial foreclosure process.

Now, the California Legislature is considering a bill that would protect those homeowners as well, the New York Times reported June 22. SB 1178 extends protection from deficiency judgments to people who refinanced took out home equity loans, but only up to the original mortgage amount. That is, if your original mortgage was for $500,000, the lender cannot pursue the balance owed on that $500,000 -- but may sue to recover any extra taken out as a loan. In fact, the Times reported, the original bill protected homeowners who took out any amount as long as it was to finance home improvements, but the bill has changed due in part to lobbying from the banking industry. On the other side is the real estate industry, the Times said, which wants to make sure potential clients can afford to buy again.

The article reports this as a fight between real estate industry and the banking industry, and from a political standpoint, that might be right. But as Brea loan modification lawyers, we see it from the point of view of our clients, who are ordinary people struggling to hold on to their homes and investments. Of course, this bill would benefit our clients by protecting more borrowers from lawsuits. As things currently stand, whether a homeowner is protected is somewhat arbitrary; people who refinanced for a better interest rate are treated the same as people who overextended themselves with a large HELOC. This bill corrects that inequity. It also, as one San Diego attorney in the article notes, takes away banks' ability to squeeze promises to pay out of homeowners as a condition of a short sale -- a practice that takes advantage of sellers who are desperate and frequently don't understand their rights.

If you're considering walking away from your mortgage because you can't get a fair loan modification, you should contact Howard Law PC as soon as possible. We have secured loan modifications for numerous homeowners who came to us after months of fruitless trying to get the lender to give clear answers, return phone calls and communicate internally. We attribute our greater success to the fact that we're Inglewood loan modification attorneys -- which means we know our clients' rights, and we can and will sue if we believe those rights were violated. Lenders know this, and it sometimes motivates them to prioritize a case that previously languished for months without real attention. We can also counsel borrowers on the potential financial and legal consequences of walking away, a short sale or a deed in lieu of foreclosure, or defend borrowers in a lender's lawsuit.

Howard Law offers confidential, free consultations, so you can talk to us about your case at no cost and with no commitment. To learn more or set up a meeting, call us today at 1-800-872-5925 or send us a message online.