The Anti-Deficiency Statute, CCP Section 580b, Has Been Expanded to Apply to Homeowners’ Purchase Money Loans Refinanced After December 31, 2012

Written By: Christine E. Howson 

Effective January 1, 2013, statutory protection exists for homeowners from deficiencies on new refinanced “purchase money loans,” as defined by Code of Civil Procedure section 580b.  Previously Code of Civil Procedure section 580b (which is one of California’s four anti-deficiency statutes) did not exempt borrowers from personal liability for real property secured loans made to refinance purchase money loans.  Section 580b now provides this protection to homeowners for loans executed on or after January 1, 2013 to refinance purchase money loans and for subsequent refinances of purchase money loans; however, such protection does not extend to any money taken out of the refinancing (i.e., new principal) which is not applied to the pre-existing obligation on the prior purchase money loan or to fees, costs or related expenses of the refinancing.

This statutory expansion of California’s anti-deficiency protection for borrowers is in addition to the existing anti-deficiency protections afforded by Section 580b for purchase money loans secured by deeds of trust or mortgages in favor of lenders on dwellings for not more than four families occupied entirely or in part by the borrower.  In addition, Code of Civil Procedure section 580b continues its existing anti-deficiency protection for a note given to the seller of any type of real property encumbered by a deed of trust or mortgage to secure the balance of the purchase price.

Lastly, it should be noted that in expanding the protection afforded by Section 580b, the California Legislature did not retract or change the existing anti-deficiency protections provided by Code of Civil Procedure sections 580d (prohibiting most deficiencies on notes secured by a deeds of trust after non-judicial foreclosure sales), 580(e) (prohibiting deficiencies after an individual homeowner’s short sale of his or her residence with the lender’s consent) and 726(b) (prohibiting any deficiency judgment greater than the “fair value” of the property).  Under the circumstances where any of these four statutory anti-deficiency protections are provided, the lender or seller must rely on the proceeds from the sale of the real property security to pay the note and generally cannot sue the borrower for any deficiency even after a sale of the property in connection with a judicial foreclosure action.