New Law: No more deficiency claims on Short Sales in California!
Woo Hoo! SB 458 is now the law in California! This means the second mortgage holder must relieve a homeowner of any deficiency claim if they approve a short sale. SB 931 made the same type of deficiency waiver mandatory for first mortgage holders, but the second mortgages were exempt. This led the seconds to put a stranglehold on many homeowners, making unreasonable demands on distressed homeowners. NO MORE. Short Sales mean paid in full.
As a San Jose Short Sale Agent, I believe this announcement is one of the most significant in the Short Sale process because it permits homeowners to simply walk away after the sale. I spent many many hours negotiating with seconds to permit the homeowners to walk away without paying anything or paying as little as possible. The passage of this new law eliminates that whole unpleasant process.
Kudos to Governor Brown for having the compassion to help distressed homeowners. Finally, some protection for the homeowners and not just for the large banks. We must allow short sales to process quicker and more efficiently, rather than drag on because of the seconds want to squeeze more blood out of homeowners who already suffered from negative equity and are losing their homes. This new law makes it easier California homeowners to do a short sale now and avoid foreclosure because that little sticky issue with the deficiency claim is preserved after a foreclosure sale. Now the reason for doing a short sale over a foreclosure becomes infinitely more clear.
CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law
LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.
Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”
SB 458 contains an urgency clause making it effective upon signing.
Why are junior lien holders playing hard ball?
Blog entry
Here is an interesting perspective from a fellow CDPE and a friend, Sidney Jimenez, as to why it is becoming harder to negotiate with junior lien holders (2nd loans) in a short sale. More and more, the junior lien holders are demanding a lump sum contribution or some sort of promissory note (which they presumably will sell later to a collection agency) rather than simply take what the senior lien holder (first loan) dictates. Naturally, the hardship at hand will ultimately dictate whether the seller will have the wherewithal to make such payments or live up to the promissory note, but there is a trend developing here.
