By Derik N. Lewis, Esq.

The California Association of REALTORS® (C.A.R.) declared “victory” upon the Senate passage of SB 1178 on June 3, 2010 (the bill now moves to the Assembly for approval). Should this bill become law, California real estate agents should be cautioned to read the legislation very carefully because the protections afforded will be very narrow in scope.

We already know that California Code of Civil Procedure (CCP) Section 580b prohibits a lender from seeking a deficiency judgment after the foreclosure on a “purchase money” loan. A purchase money loan is a loan that was used to acquire an owner-occupied residence. Most borrowers do not understand that when they refinance a purchase money loan, even if just to get a better rate and term, they lose the anti-deficiency protections of CCP 580b.

As C.A.R. explains in its “RED ALERT” announcement, SB 1178 is meant to extend the anti-deficiency protections found in 580b to homeowners who have refinanced purchase money loans and are now facing foreclosure. What is left unsaid from the announcement is that the protections in the proposed law are limited to the amount of the original purchase money loan. Therefore, borrowers are still exposed to deficiency claims for any “cash-out” portion of the refinancing. It is this cash out portion of the refinancing that is creating the extensive deficiency exposure faced by many California borrowers.

If this bill is signed into law by the Governor, we should be careful not to overstate of the victory, as was done upon the passage of the Mortgage Forgiveness Debt Relief Act of 2007 (borrowers were being told that all cancellation of debt was tax free – this is simply not the case). While SB 1178 will produce a very good law, it will not be a panacea for the aftermath of California’s refinance boom.

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LAWYERS REALTY GROUP is an attorney owned and operated real estate brokerage that was formed to help level the playing field between struggling homeowners and the banks who are threatening them with foreclosure, eviction, deficiency judgments, and collection actions.

Unlike traditional real estate agents, loan mod companies, bankruptcy attorneys, litigators and others who aggressively market their particular one-size-fits-all solution regardless of a homeowner’s future liability and financial well-being, Lawyers Realty Group provides clients with a customized analysis of their options, free legal counseling and clear direction on how to best resolve their particular mortgage issues – all without charging fees to the homeowner.


Derik N. Lewis, Esq., is the founder and president of Lawyers Realty Group. Derik is a California real estate attorney, a licensed Realtor® and a member of the National Association of Consumer Bankruptcy Attorneys. He graduated magna cum laude from Boston University School of Law and has nearly 30 years of real estate experience. For more than two decades as an attorney in private practice, Derik has represented California homeowners with difficult real estate matters. Derik previously served as legal counsel for some of the world’s largest lenders including Bank of America, Wells Fargo and JPMorgan Chase (he knows how they operate and how to work within their systems to help you achieve the best possible outcome). He is also a visiting lecturer at the University of Southern California School of Law speaking on real estate law, brokerage and litigation.

Professional Associations

  • Admitted to all State and Federal Courts in California
  • California Bar Association
  • Orange County Bar Association
  • National Association of Consumer Bankruptcy Attorneys
  • National Association of Realtors
  • California Association of Realtors
  • Orange County Association of Realtors
  • California Regional Multiple Listing Service

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Complete representation for the option that best suits your situation, whether you need assistance in reviewing a loan modification, filing bankruptcy, seeking a deed-in-lieu of foreclosure, pursuing a planned foreclosure or selling in a short sale.

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Free legal review and fraud analysis of all solicitations from the bank, real estate agents, lawyers or others.

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