All of this talk about SB 458 and how it affects a short sale in California is short-sighted. That's because nobody seems to be paying attention to the bigger issue at hand. All of the attention has been focused on the release of liability for the seller. Like Dorothy in the Wizard of Oz, I hate to say, clicking those heels together to go home, the seller has always had the ability to get a release of liability and to avoid a deficiency judgment after closing.
It's called hiring a competent Sacramento short sale agent and / or getting a lawyer.
Now that banks are prohibited from a deficiency judgment and they must release the seller -- regardless of whether the loans are purchase money or hard money, regardless of whether the home is occupied or vacant, regardless of whether the loan is a first mortgage or a second mortgage or a third mortgage -- some banks are no longer negotiating. They just won't approve the short sale. They will let the home go to foreclosure, especially if recourse is possible.
But the big problem -- the silent elephant in the room -- is the fact the seller cannot contribute to the short sale. This option was available prior to SB 458 as a way to encourage the bank to short sale. Often it was a small seller contribution, maybe a thousand or two. Now the seller can't pay the bank any money out-of-pocket. That option is gone. None. Nada. The seller can't even pay for an HOA certification, which often must be paid in advance of closing. The seller can't pay a non-allowable fee that the bank won't pay. In short, the seller cannot bring any money to the table to close.
California Civil Code 580e will be amended. Part of the additional verbiage is found in Section ( 2-b) A holder of a note shall not require the trustor, mortgagor or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the short sale.
I hear title companies are busy preparing statements that both the banks and sellers will need to sign. The statement will hold title companies harmless if sellers pay anything into the deal. You can bet the banks won't sign it.
I'm telling ya, this issue with SB 458 and its resulting amendment of California Civil Code 580e is gonna be a big problem. There is no more tit for tat with the bank. No negotiation. And certainly no way to piece together the closing when the bank refuses to approve the entire HUD. Banks are already operating on the edge of law with some of things they demand in a short sale, but trying to muddle through SB 458 is now a royal PITA.
Some lawyers are arguing to say that a bank still has a right to mitigate its loss, and you can't take away that right with SB 458. There's also no way to enforce it. I'm seeing that banks are still demanding contributions, and frazzled sellers are paying it. Until we reach some kind of appellate court decision, we're in a for bumpy ride.
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