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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Permalink Reply by Kari A. Battaglia on July 18, 2011 at 12:06am

This sounds like a win for consumers but those with jr lien holders might find that this will back fire on them.  What incentive is a jr lien holder going to have to cooperate with the short sale process?  It will be more profitable for jr lien holders to foreclosure than proceed with short sale.  I hope for everyone's sake this is not the case. 

 

Permalink Reply by Pat Chadwell on July 18, 2011 at 10:33am

I would agree that some jr.lien holders might hold out for the 1st to foreclosure and then pursue the deficiency but I think this new law will help.  In our office we have gotten to the end of the short sale approval process after months of waiting only to find out the 2nd will not waive the deficiency or the wording in the approval letter is so vague as to leave the client open for future issues after close.  At least we will knows before the seller closes the transaction.

 

Pat Chadwell, broker

 

Permalink Reply by Michael Davin on July 19, 2011 at 8:40am

Get ready for these three words on your short sale submission......Short Sale Declined.

 

This law is typical for CA.....good on paper, bad on the streets.  Short sales will be declined and more foreclosures will happen and borrowers will find themselves sued by lawyers on 50/50 recovery contingencies with the 2nd lien holders. A small promissory note to walk away from a big mortgage WAS a great option for borrowers.  I can also see the lawsuits already around the who offered the promissory note?  This law won't make anything clear.

Permalink Reply by Shari P on July 20, 2011 at 9:29am
I have a short sale that was approved last week just days before SB 458. There are two loans (purchase money) and in both cases the lenders are requiring prom notes. We lost the buyer yesterday but the seller is wondering if this is good news for her because it will have to be re-approved with a new buyer without prom notes, according to the new law. On the other hand, she's worried that maybe they will just outright reject it without the ability to seek prom notes.
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on July 20, 2011 at 9:33am

Submit the new offer and include a copy of SB458 !

 

Good luck !

Shari P said:

I have a short sale that was approved last week just days before SB 458. There are two loans (purchase money) and in both cases the lenders are requiring prom notes. We lost the buyer yesterday but the seller is wondering if this is good news for her because it will have to be re-approved with a new buyer without prom notes, according to the new law. On the other hand, she's worried that maybe they will just outright reject it without the ability to seek prom notes.
Permalink Reply by Shari P on July 20, 2011 at 9:39am

Thom, Great Idea!!! Thanks!!

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