Under California law, homeowners who borrow money to buy a house are protected from "deficiency liability" under Cal. Code Civ. Proc. §580b. Unfortunately, that protection is lost when the mortgage is refinanced, since the debt is no longer a "purchase money" obligation. Several years ago, the Insolvency Law Committee of the California State Bar began to work on a legislative proposal to extend purchase money protection to refinancing transactions; as a member of that committee, I have been closely involved in drafting the proposal and in attempting to shepherd it through the legislative process.
Following a long series of discussions among the State Bar, the lending industry and other relevant players, Sen. Ellen Corbett (D-San Leandro) offered to sponsor the bill (now labeled SB 1069). It has been amended during its journey through the Legislature and, as of mid-March, 2012, it is now before the Senate Committee on the Judiciary; although some peripheral issues have been cut from the current draft of the bill, the essence of our original proposal is still intact. Further hearings are expected before the bill comes before the full Senate later this year. If this bill passes in its present form and is signed by the governor, it will apply to transactions occurring after January 1, 2013.