Maureen Megowan's Blog

head_left_image

SB 931 Short Sale Deficiency Protection Bill Signed by California Governor

SB 931 Bill Passed by the California State Senate on August 23rd which provides Short Sale Deficiency Protection for First Mortgages in a short sale transaction was signed by the Governor on September 30th and will become effective for transactions after January 1, 2011.

The legislative counsel's summary of the bill follows:

"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 (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. "

Existing law prevents a lender who has made a purchase money mortgage ( a loan used to purchase a home , not a refinance ), from pursuing a deficiency judgment after foreclosure.  In a short sale, however, some attorneys have been concerned that this protection may not extend to a seller in a short sale where the lender does not expressly relieve the seller from a potential deficiency judgment even if the loan was a purchase money mortgage.  This law would eliminate this ambiguity in the law.  This law would also apply not only just for purchase money mortgages, but for "hard money loans" which are first mortgage loans not used to originally purchase the home, such as a refinance. 

This law would not change existing law relating to second mortgages in a short sale, so it still remains very important for sellers to obtain written relief from future deficiency judgments from second mortgage lenders in a short sale. Many attorneys still believe, however, that if a second mortgage was also a purchase money mortgage used to initially purchase the home, that the second loan would also still be non-recourse after a short sale, but there has not been definitive case law confirming this.

The above information is provided for educational purposes only and is not intended to be definitive legal advice. The specific facts of a case can have significant impact . Anyone going through a short sale or foreclosure should obtain legal counsel from a licensed real estate attorney.

For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.

Comment balloon 0 commentsMaureen Megowan • October 06 2010 04:42AM
SB 931 Short Sale Deficiency Protection Bill Signed by California…
share
SB 931 Bill Passed by the California State Senate on August 23rd which provides Short Sale Deficiency Protection for First Mortgages in a short sale transaction was signed by the Governor on September 30th and will become effective for transactions… more
Terranea Announces New Financing and Restructuring
share
In a press release, Lowe Enterprises announced today the closing of a transaction that provides for the long-term stability of Terranea Resort, a 582-room world-class, oceanfront resort in Rancho Palos Verdes, Calif. The transaction includes an… more
Top Sales Agent in Remax Palos Verdes Realty/Execs Malaga Cove Office…
share
I just received a wonderful surprise when I was named the Top Sales Agent in the Malaga Cove Office of Remax Palos Verdes Realty/Execs for the month of September 2010. I received this award for the sales of the following two great properties: 1105… more
Why Price Per Sq. Ft. is Misleading when looking at Properties
share
I use price per square foot in a market to track overall trends, however, price per square foot is usually completely useless in evaluating the value of a single property. There are so many subjective elements used to evaluate the price of a home… more
California Governor Vetoes C. A. R. -Sponsored Anti-Deficiency Bill
share
The following article was circulated via email today by the California Association of Realtors: On Thursday, Governor Schwarzenegger vetoed SB 1178 (Corbett), C. A. R. 's sponsored bill that would have expanded anti… more