July 15, 2011 – California homeowners who are considering a short sale of their troubled properties can rest easier today after Gov. Jerry Brown signed into law Senate Bill 458. The new law broadens previous short sales laws.
The previous law allowed homeowners to sell their homes at a value less than their existing mortgage value, and the first-mortgage holder had to agree that the sale was accepted as full payment of the obligation, with no recourse.
The new law, Senate Bill 458 requires the same “no recourse” treatment for any secondary, or other junior loans involved in the transaction. Up until now, it was possible for a homeowner to successfully complete a short sale, only to have the lender come back at a later date and require full payment for any short-falls.
Local real estate agents are applauding the new law. A short sale transaction may take several months to complete because of the inability of lenders to make timely decisions. These same local real estate agents are now concerned that the lenders may take even longer deciding the merits of a short sale.
From CAR:
SB 458 (Corbett) Anti-Deficiency – C.A.R .initially sponsored SB 458 to revisit the “anti-deficiency” issue of SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger. As introducedSB 458 would have extended existing anti-deficiency protections to cover the refinance of purchase money mortgages, and new debt (cash out) incurred to acquire, construct or improve the home. C.A.R. and the lender groups reached an agreement to amend SB 458 to instead expand the provisions of existing law (SB 931 of 2010) which became effective this year. SB 931 requires a first mortgage holder to accept an agreed upon short sale payment as full payment for the outstanding balance of the loan, but does not apply to junior lien holders.
SB 458 extends the protections of SB 931 to junior liens effectively providing that any lender that agrees to a short sale must accept the agreed upon short sale payment as full payment of the outstanding balance of all loans. In addition, this measure will clarify that this rule applies only to residences.
