There is great news for homeowners who are upside down in their mortgage payments and need to sell their homes. On September 30th the Governor signed Senate Bill 931 (SB 931) regarding California Short Sale Deficiencies. This bill came into effect on January 1st, 2011. It states that any first mortgages (lender) that accepts a short sale will not be able to obtain a deficiency judgment against a seller after the completion of a short sale. So, what that means to the seller is, if a lender provides written consent to a short sale on a first mortgage, the lender must accept the sales proceeds as full payment and discharge the remaining balance due on the loan. This new law will apply to all first mortgage loans secured by purchase money, hard money, refinance and cash out refinance loans. Whether the property is your primary residence (no more than 4 units), second home or investment property it still applies. However, it does not prevent the lender from seeking damages for fraud or waste by the borrower.
A Summary of the Legislative Counsel’s Bill States:
“This bill would prohibit a deficiency judgment under a note secured by a first deed of trust or first mortgage for a dwelling of not more than 4 units in any case in which the trustor or mortgagor *(owner) sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. The bill would provide that written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.”
Since this new law only applies to mortgages in the first lien position, it is therefore very important for any borrowers with a second lien to get in writing any future deficiency rights against them waived. Some attorneys believe that if a second mortgage is purchase money, the seller will be protected under the non-recourse laws, however, there has not been any definitive case-law to support this belief.
There truly is help for homeowners! Our team is very successful in negotiating short sales with the majority of the lenders in the industry. We are highly skilled at obtaining written deficiency rights waivers from lenders on behalf of sellers. It is extremely important for you to have an experienced team on your side. We are here to help, so feel free to contact us with any questions. (916) 832-8973
To review the bill in its entirety, please click on the Senate Bill 931 (SB 931) link above.