On Friday of last week the Governor signed C.A.R.-sponsored SB 458 (Corbett) into law! This measure, for any short sale transaction closing escrow after July 15, 2011, will prohibit deficiency judgments from being imposed after a short sale on sellers of one-to-four unit homes. Because the bill was “urgency” legislation, it took effect immediately upon signature.
SB 458 extends the protections of SB 931 (Ducheny), which went into effect on January 1 of this year. SB 931 requires a first mortgage holder 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 at a later time. Unfortunately, this rule did not apply to junior liens!
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 the loans.
Some sources have questioned whether prohibiting the junior lenders rights to a deficiency judgment might cause junior lien holders to reject more short sales outright, forcing more homes into foreclosure. Others have suggested that some borrowers have abandoned short sales when faced with the threat of a deficiency or “reservation of rights.” C.A.R. concluded that on balance, the system would be improved and be made fairer for homeowners. Especially since this measure still allows a borrower, real estate agent or other parties to negotiate to bring extra money to the table in the hopes of reaching an agreement.
For more information on the institution of SB 458 and what it means for short sales see C.A.R.’s Legal Department’s Realegal® on the measure.
Original article posted at http://blog.car.org/2011/07/once-a-short-sales-done-it-is-done/
More information available about SB 458 – Gov. signs SB 458 into law