Posted by: Catherine | October 5, 2010

California SB 931 – no deficiency following short sales


SB 931, a bill introduced earlier this year, passed through the State Senate and Assembly in August, was signed by the Governor on September 30th, 2010, and will enacted beginning January 1, 2011.

FILED WITH SECRETARY OF STATE SEPTEMBER 30, 2010
APPROVED BY GOVERNOR SEPTEMBER 30, 2010
PASSED THE SENATE AUGUST 19, 2010
PASSED THE ASSEMBLY AUGUST 16, 2010
AMENDED IN ASSEMBLY JUNE 1, 2010
AMENDED IN SENATE MARCH 25, 2010
AMENDED IN SENATE MARCH 15, 2010

INTRODUCED BY Senator Ducheny

FEBRUARY 2, 2010

An act to add Section 580e to the Code of Civil Procedure, relating to mortgages.

This bill offers much needed relief for California homeowners who sell their properties through a short sale.  Until now, the laws allowed banks to pursue a homeowner following a short sale for the balance of the deficiency.  No more on their first liens (this bill will impact only first deeds of trust).

From the full text:

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 trustor or mortgagor
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.

This has always been a sore spot with me and others involved with helping people in their short sales.  When doing a short sale, one of the primary motivations is to “do the right thing.”  In a short sale, we are in many ways, helping the bank.  We are getting a current, fair market value price.  The sellers are continuing to maintain the property.  And importantly we are helping the bank a costly and long drawn out foreclosure process.  To further pursue these people later, lessened any motivation to do a short sale for many across California.  This is because in a foreclosure in California, if a bank forecloses this is all they can do to you. NO deficiency.  So when faced with walk away and foreclose = no liability OR short sale = future liability – it’s a no brainer for many.  This will help.

However, do always consult with an attorney and your CPA for any other recourse, tax or credit consequences of a short sale.   And remember, this will not help you if there is any fraud involved in your loan, or during the sale.

This is an explanation from last week (before the Governor signed it) from the California Association of Realtor’s facebook page in response to a question about when this will be enacted:

“. . .  SB 931 would require a lender that has approved an agreed upon short sale payment to accept that amount as full payment for the outstanding balance of a loan secured by real property, prohibiting the lender from pursuing an additional deficiency judgment. The deficiency protections in this measure only apply to first liens, junior liens are not affected. If signed by the governor this week, SB 931 would go into effect on the first day of next year, January 1, 2011. The text of the bill does not specifically address whether it will be applied on a go forward basis, to short sales that occur after the effective date, or retroactively, to short sales that occurred prior to the effective date. The measure would certainly apply to those short sales that occur after the effective date of January 1, 2011 but it is unknown how or if short sales that have already closed would be affected.”

Catherine Myers, Broker Assoc
DRE 01337828
Windermere Bay Area Properties
925-683-2125
catherine (at) diablovalley.net

Contra Costa Homes for Sale Walnut Creek, CA
Contra Costa and Alameda County short sale specialty
Serving Walnut Creek, Concord, Clayton, Pleasant Hill, Martinez, Lafayette, Orinda, Moraga, San Ramon, Danville, Alamo, Dublin, Pleasanton, Sunol, Ruby Hill, Livermore, Antioch, Oakley, Brentwood, Discovery Bay, Pittsburg and Bay Point.

I’m your short sale resource.  Referrals to attorney or tax help.  Always check with your attorney and CPA before proceeding with a short sales.  A short sale is not right for everyone and may have serious recourse, tax and credit consequences you need to be aware of.


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