"Under what circumstances is the lender prohibited from going after the "deficiency balance" ?" CA Short Sale Q & A. Series 4. Deficiency Balance is defined in a previous post.
Q 4. Under what circumstances is the lender prohibited from going after the "deficiency balance" as defined in Question 3 after a short sale?
With the passage of SB 458, effective July 15, 2011, after the short sale of a residential property of one-to-four units, the holder of any senior or junior deed of trust cannot pursue the borrower (seller) for any deficiency under the note. If the lender consents to the short sale in writing, as long as the proceeds of sale were tendered to the lienholder as per the buyer and seller's agreement, then no deficiency can be collected or is even owed, and no deficiency can be rendered or even requested. The borrower (seller) is protected even if the loan is refinanced as long as it's secured by a trust deed.
An exception to SB 458 occurs if the borrower (seller) has committed fraud with respect to the sale of the property or has committed "waste" of the real property (e.g., severely damaged the property) (Cal. Code Civ. Proc. § 580e (b)). Under these circumstances, the borrower (seller) may still be liable for the deficiency balance.
Note: SB 458 doesn't apply if the borrower (seller) is a corporation or political subdivision of the state (Cal. Code Civ. Proc. § 580e (c)).
If you have further questions please call Kristine, 310-737-8173.