New Short Sale Law to Protect Homeowners From Deficiency
February 24, 2011 By Phill Grove Leave a Comment
SB 931 is a new short sale law created to protect California homeowners from deficiency judgments.
New Short Sale Law
I read a good article online from Stephen McMullen, a lender out of California, about the new California short sale law being passed to protect the homeowners from deficiency judgments.
A deficiency judgment is when the bank sues the homeowner for the difference between the mortgage note and the sales price. For example, if a homeowner had a mortgage of $200,000 and the house sold via short sale for $150,000, the bank could sue the distressed, homeless homeowner for the $50,000. Obviously, a new short sale law to protect the homeowner is necessary.
What is the new short sale law?
The new short sale law SB 931 took force January 2011. This short sale law brought protection for homeowners from deficiency on first mortgage’s. This law does not handle second mortgage’s or non-purchase money loans.
What represents a purchase money loan? A purchase money loan constitutes a loan that was drawn out for the original purchase of the residence. This includes both 1st and 2nd mortgages in use for the purchase of the household.
What is a non-purchase money loan? A non-purchase money loan is one that has been taken out after the original purchase of the property. Equity lines of credit would be the most common type of non-purchase money loan.
The following is a different variation of the new short sale law:
580e. (a) No juridical decision shall constitute rendered for any deficiency under a note secured by a
case in which the trustor or mortgagor sells the dwelling for less than the remaining
amount of the liability due at the time of short-sale agreement with the composed consent of the
bearer of the 1st deed of trust or 1st mortgage. Composed 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
debt on the 1st deed of trust or 1st mortgage.
Whenever the trustor or mortgagor commits either fraud with regard to the short-sale of, or waste
with regard to, the real property that secures the first deed of trust or first mortgage,
this section shall not restrict the ability of the holder of the first deed of trust or first
mortgage and seek damages and use existing rights and remedies against the trustor or
mortgagor or any 3rd party for fraud or waste.
(c) This section shall not apply if the trustor or mortgagor is a corporation or political
subdivision of the state.
Spotlights of the new practice of law:
a. If a lender provides written consent to a short-sale on a first mortgage, the lender must
consent the short-sale proceeds as full payment.
b. Applies to all 1st mortgages
Exceptions:
Fraud
ii. Waste (damage)
d. It cannot be retroactive.
4. New opinion on foreclosure in CA:
a. Lenders are barred from further lender action if they use a non-judicial
foreclosure…regardless of the of loan type (non-recourse or recourse)!
b. Most foreclosure in CA are non-judicial
5. Summary: Commencing Jan. 1, 2011, if a first lien position short-sale lender accepts a short-sale or completes
a non-judicial foreclosure…they are finished!
The short-sale process has come a long way and I conceptualize there will continue to be protection for the homeowner in relation to* anti deficiency laws and tax laws. There is a lot of homeowners that have been confronted with a short-sale on their home that we need to do something. The idea of lenders coming after former homeowners for deficiency judgements would be adverse. http://www.profitedition.com/sb-931-takes-effect-new-short-sale-law-protecting-homeowners/
New Short Sale Law Summary
In conclusion, while I don't believe that homeowners should be rewarded for going through short sales or foreclosures, distressed families that have just lost their houses shouldn't be subject to short sale deficiency judgments either. There's only so much blood to squeeze from a turnip, and the banks have been gifted trillions of dollars from taxpayers to help with these deficiencies (that are instead being passed out to bank execs as record breaking bonuses). Therefore, I am happy to see this new short sale law and hope distressed homeowners receive protection from the lawsuits.
If you liked 'New Short Sale Law to Protect Homeowners From Deficiency' then you may also enjoy other articles written by Phill Grove at www.REIMaverick.com
Questions and Answers
This article explains what a mortgage deficiency judgment is and how it relates to a property undergoing a foreclosure proceeding. Mortgage deficiency judgments become personal debts of a homeowner after a home is foreclosed on where the amount recovered by the lender is less than the amount actually owed on the mortgage loan. Six steps to defending against mortgage deficiency judgments are provided.
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