Friday, June 4, 2010
It's official today! SB 1178 just approved this afternoon by the Senate despite opposition from major lenders. The bill passed by a vote of 30 to 4.
In layman's terms. The bill will extend protection to homeowners who have been foreclosed upon. More specifically, lenders have been officially restricted from going after the personal assets of the borrower (except for the property that was foreclosed upon) even if the borrower refinanced (as long as the refinance was not a "cash out" or similar refinance). Refinances to simply get a lower interest rate with zero "cash out" will fall also fall under the protective wing of this bill.
Todd's quick implication examples for SB 1178:
A) Joe lost his house to foreclosure, Joe never refinanced and the entire loan amount was all money used to buy the house. **Joe is and has always been safe from the bank going after his bank accounts and other assets**
B) Jane lost her house to foreclosure, Jane did refinance but she only did so to get a lower interest rate and never pulled money out of the home. **Jane is now safe from the bank going after her bank accounts and other assets**
C) Tom lost his house in foreclosure, Tom refinanced and took some cash out of the house to buy another property and a jet ski. **Tom may not be safe from the bank going after his other assets**
D) Theresa lost her house to foreclosure, Theresa refinanced and took some cash out but only used it t do construction projects to the same house. **Theresa is now safe from the bank going after her bank accounts and other assets.**
- Pro: Allowing banks to go after personal assets outside of the home in question causes banks to become less critical than they should be of the homes they are lending on because of additional security in the borrowers personal assets. Lack of criticism by banks toward the homes they are lending on is partly to blame for the current housing market situation.
-Con: Banks need recourse via personal assets when borrowers refinance since they are outside of the original terms of the loan. Borrowers have clearly signed paperwork stating that they understand the forfeiture of these rights as part of the exchange (say for a lower interest rate) in a refinance. Cutting off recourse to lending institutions only increases the risk of doing business and therefore costs to consumers.
What do you think?
Was this the right or wrong thing to do? Why?
Will this hurt or help us?
Should banks be allowed to go after a consumers personal assets after foreclosure?Should consumers always have foreclosure protection regardless of refinances?
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