If a seller in Sacramento, -- or anywhere in California for that matter -- ever needed a good reason to do a short sale over a foreclosure, the fact that SB 931 was signed into law by Governor Schwarzenegger on Sept. 30th should be reason enough. First lenders can no longer go after a short sale seller of one to four units. Of course, the protection against a deficiency judgment is only for a first trust deed, but it no longer matters whether that first loan was purchase money (non-recourse) or hard money (recourse). It does not apply to subsequent or junior encumbrances.
The provisions of SB 931, which is now added as Section 580e to California Civil Code, prohibits a first lender from pursuing a seller after a short sale. It does not protect those who go through foreclosure. Although purchase money loans are non-recourse, some lawyers have argued that doing a short sale gives a bank certain rights to pursue a seller after a short sale, regardless.
I have received short sale approval letters that address this right and letters that do not. Sellers are not automatically exempt from a deficiency simply because the short sale letter does not address the issue. SB 931 clears up that confusion.
However, here is the kicker. It applies only to short sales that close on or after January 1, 2011. This could possibly mean that many sellers with only one loan may elect to postpone closing their short sale until January. Of course, sellers facing an auction really don't have that luxury. They may have to close or go to foreclosure.
The new anti-deficiency law applies only to one to four units, and the sellers must not have committed fraud or be a corporation or political subdivision of the state.
See previous post about SB 931.
Photo: Big Stock Photo
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