What Your Lender and Mortgage Broker Didn't Tell You: A Call for Disclosure of Loss of the Section 580b Anti-Deficiency Protection upon Refinancing

California Civil Code of Procedure section 580b protects a California homeowner from a deficiency judgment when the homeowner's purchase money lender forecloses on the house. The protection of section 580b applies only to purchase money mortgages - not to cash out refinance mortgages and probably not to any refinancing mortgage loan under existing law. The California Civil Code requires an initial disclosure of this protection to purchase money mortgage borrowers, but it does not specifically require disclosure of its loss upon refinance. Moreover, lenders that are subject to the Federal Truth in Lending Act or the Homeowners Equity Protection Act are not required to make any such disclosure due to federal preemption.

This article suggests that federal law be modified to provide for disclosure of borrower protections like 580b.