Monday, July 18, 2011

SB 458 Passes: NO Short Sale Deficiency Judgements on Second Trust Deeds (aka, Junior Liens) in California!

I have not noticed much media coverage for this, but on Friday, California Governor Jerry Brown on signed SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (passed and signed into law last year by Governor Schwarzenegger) to also include junior liens, aka 2nd mortgages. Both pieces of legislation state that a lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Prior to SB 931 and SB 458, only financing obtained at the time a home was purchased contained "anti-deficiency" protection -- meaning the mortgage lender could not pursue any action or have recourse to recoup their loss or "deficient" balance. Now these protections are extended to refinanced loans, and "junior" liens.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. In order to sell the home, the mortgage holder(s) must approve the sale because the amount owed is "short" of what is currently owed by the seller.

SB 458 contains an urgency clause making it effective upon signing (July 15, 2011) it now it would seem that any California short sale seller who closes their transaction successfully would have protection from recourse afterwards...good news for distressed property sellers!

I do many short sales in Sacramento, often times for sellers with multiple loans on their homes. This, combined with the state and federal "phantom income" tax relief, will certainly create a much more favorable environment for short sale sellers who already have financial hardships to get their properties sold -- one less thing to worry about.

This legislation was championed by the California Association of Realtors -- of which I sit on its Board of Directors. I have blogged before that we advocate on behalf of property owners since there is no "California Association of Home Owners." I am very pleased to see that we were successful in our efforts to help California (and specifically Sacramento-area) sellers who need to sell but are upside-down in the value of their homes.

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