LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED
On Friday July 15, 2011, Governor Brown signed into law a California Associations of Realtor’s sponsored bill, Senate Bill 458.
Senate Bill 458 prevents lenders, who have agreed to a short sale, from pursuing a property owner for any deficiency created after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lien holder.
Effective immediately for transactions closing escrow from this day forward, both senior and junior lien holders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.
Although, a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower's fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.
Disclaimer: This is not legal advise and is solely for informational purposes. I am a California Real Estate Broker specializing in real estate Short Sales, Probate Sales and Regular/Standard sales in the Los Angeles County area.
Real Estate Broker
Realtor since 1987