I just received this update from the legal department of the California Association of Realtors. THIS IS A BIG DEAL! We may have spoken about SB 931 (CA) which prohibits a lender in FIRST POSITION from pursuing a deficiency after a short sale in California for residential properties, 1-4 units. Governor Brown just signed into law yesterday SB 458, which now expands the law to Jr. Liens as well ( second loans for example). This means that from yesterday on, once a Jr. Lien holder agrees to a short sale, they cannot come after the seller after close of escrow for the deficiency.
Of course, any homeowner considering a short sale should discuss with their Real Estate Attorney the current laws and how it applies to them as I am not qualified to give legal advice. Here is the UPDATE:
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.