Senate Bill 931 (SB 931) pertaining to California Short Sale Deficiencies was signed by the Governor on September 30th. Beginning January 1st, 2011 any first mortgages that accept a short sale will not be able to obtain a deficiency judgment against a seller after the completion of a short sale. 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. The new law will apply to all first mortgage loans secured by one to four residential units, including purchase money, hard money and refinanced loans. The new law does not prevent the lender from seeking damages for fraud or waste by the borrower. 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. " The new law only applies to mortgages in the first lien position. It is still very important for any borrowers with a second lien to get in writing that any future deficiency rights are waived. While many attorneys believe that if a second mortgage is purchase money, that the seller will be protected under the non-recourse laws, there has not been any definitive case law to reflect this.
Confirm this and other matters with your attorney.
Labels: Short Sales
