Good news for California short sales


Here is the legal notice we just received -

LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED

 

In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four
residential units, regardless of whether the lender is a senior or junior
lienholder.  Effective immediately for transactions closing escrow from
this day forward, both senior and junior lienholders 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.


This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov

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Replies to This Discussion

Permalink Reply by Bryant Tutas on July 17, 2011 at 12:32am
This is going out in the newsletter today
Permalink Reply by Sameer Punjani on July 17, 2011 at 2:04am
Does this apply to still purchase money or all transactions now?
Permalink Reply by Kimberley Kelly on July 17, 2011 at 2:23am
I got this e-mail yesterday evening..fantastic!!!  Working Short Sales her in the Palm Springs area of Calif., it means things are CLEARER!  No fighting for language in the approval letters..BAM!  It's a law..love it!
Permalink Reply by Sameer Punjani on July 17, 2011 at 2:25am
Kim

So it doesnt matter if borrower refi or equity line right...
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on July 17, 2011 at 3:00am

This is a great "win" for consumers! 

However, there is one line in the new law we should all be concerned about:

 

"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."

 

You know the lenders will be coming after the commission !

 

Be strong everyone ! 

Permalink Reply by Mercedes Natad on July 17, 2011 at 4:41am
It's a wonderful time for Californians... Although I wonder, what are your thoughts on the chances of junior leins tightening up ship and giving even more ridiculous approvals? I think it will be great for the option, but Wells Fargo and BoA seconds are pretty strict.
Permalink Reply by Mercedes Natad on July 17, 2011 at 4:42am
Yes I read that too. I would say just keep negotiating until they get our contribution as small as possible or of course down to nothing like we do now.

Thom Colby Newport Beach CA said:

This is a great "win" for consumers! 

However, there is one line in the new law we should all be concerned about:

 

"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."

 

You know the lenders will be coming after the commission !

 

Be strong everyone ! 

Permalink Reply by Nathan Miller on July 17, 2011 at 5:40am

Expect Jr. Liens to demand more to settle and be tighter with approvals.  The more this is regulated, the less cooperative the lenders will become.  Just like when the healthcare reform went into effect prohibiting insurers for denying coverage to kids with pre-existing conditions, some insurers stopped selling plans to kids or jacked the rates way up....  I'm not sure this is a win for consumers, but time will tell.

 

 

Permalink Reply by Conrad Randolph Hodgson - Broker on July 17, 2011 at 7:06am
Good question......Any attorneys out there want to answer this?

Sameer Punjani said:
Kim

So it doesnt matter if borrower refi or equity line right...
Permalink Reply by Kimberley Kelly on July 17, 2011 at 7:32am
I just read the bill very carefully.  It does not distinguish between PML's and HELOC's ore Refi's.  However, I would have to assume that because it doesn't mention it, it is not changing..meaning PML's only.  I will treat it as such until I'm straightened out.  Doesn't make sense that they'd forgive the right for Personal Loans such as HELOC's..as to the seconds being tighter, I doubt it.  They are trying to get out from under an avalanche of Foreclosures here in CA, and this is a sane way to go about it.  Lenders...Sanity...do not belong in the same sentence, but let's see how it shakes out..
Permalink Reply by Fred Price on July 17, 2011 at 11:52am
Good information
Permalink Reply by Shanna Welsh on July 17, 2011 at 4:15pm

I assisted Sen. Ducheny to write SB 931 last year, which created CCP sec. 580e, the short sale anti-deficiency statute.  This statute applies to all loans on residential property with 1-4 units and is separate from the purchase money statute, which is a different statute, CCP sec. 580b.  I am opposed to the new changes under SB 458 and I had organized some opposition to C.A.R.'s proposal, but we were ignored by C.A.R. and the strong lobby proceeded with this bill under the prediction that it will make short sales safer for consumers and Realtors, and that other parties like first lenders and buyers will compensate for the demands of junior lienholders who will now lose their right to pursue any deficiency after the short sale.  Sounds good at first, but if you understand foreclosure law, it is obvious to attorneys, me and others whom I have talked to, that this new law on short sales will cause junior lienholders to opt for denying the short sale and making the first lender proceed with foreclosure.  Junior lienholders will still maintain the right to pursue the deficiency after foreclosure (in the absence of purchase money protection).  So these new changes to the short sale anti-deficiency statute are creating a new, and very big bump in the negotiation, and could potentially bring short sales to a halt for anyone with more than one lien.  I sincerely hope I am wrong, but unfortunately, the general consensus among real estate attorneys and Realtors who understand foreclosure laws is that C.A.R.'s proposal to remove the word "first" from the statute and expand the protection to juniors is a very bad idea.  It also serves to make a once-elegant and simple statute into a Frankenstein that will make clarity, interpretation, and application extremely difficult.  Sorry guys.

 

Sincerely,

Shanna E. Welsh

Attorney at Law

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