A quiet little bill with huge implications for Short Sale sellers in California was passed unopposed in August 2010 and signed by then Governor, Arnold Schwarzenegger in September 2010. It was Senate Bill 931. The “cliffs notes” version of what the bill provides is that it exempts all first mortgages, hard-money as well as purchase money first mortgages, from a deficiency after a Short Sale. It prevents deficiency judgments on properties secured by a first trust deed for residential dwellings of 1 to 4 units. This includes properties with refinanced first trust deeds, not just purchase money firsts, and it took effect on January 1, 2011.
The provisions of SB 931, which is now added as Section 580e to the California Civil Code, prohibits a first lender from pursuing a seller after a Short Sale. It does not protect sellers who go through foreclosure. It also does not apply to subsequent or junior encumbrances against the property such as a second trust deed.
SB 931 does not need to be owner-occupied in order to be applicable to help the homeowner.
SB 931 includes all first trust deed loans including refinanced first trust deeds.
SB 931 does not include homeowners with a HELOC loan although many Short Sale sellers with a HELOC loan have been successfully represented and able to have the deficiency judgment against the HELOC loan removed.
SB 931 does not include sellers involved in a strategic default, nor homeowners who have committed fraud, nor those who have damaged or trashed the property.
It would seem the next step for the California Legislature is to negotiate away the deficiency on second trust deeds, especially as lenders in the past made it more convenient for borrowers to purchase properties with 80-10-10 or 80-20 lending scenarios.
As always, I’m here to help you as a certified SSG [Short Sale Geni.us] helping you through the Short Sale process. Give me a call and let me help you with your Short Sale.
