New Law Gives added Protection to Short-sale Hopefuls

by on November 11, 2011

Recently, Gov. Jerry Brown signed Senate Bill 458 (Corbett) into law.  This new law, which contained an urgency clause and became effective upon signing, protects homeowners pursuing short sales by barring first and secondary lien holders, also known as banks or lending institutions, from going after sellers for money owed after the short sales close (which could also be called a deficiency judgement).

How does this affect the consumer?

  • A short sale – a transaction in which the homeowner sells the property for less than is owed on the mortgage – must be approved by the lien holder or lien holders, if there is more than one. In the past, most lien holders in the first position did forgive the deficiency on the note, however, many lien holders in the second position would make the home owner sign a note saying that they may be libel for the deficiency in the amount owed. For some home owners this could mean hundreds of thousands of dollars. Many people opted to go in to foreclosure rather than have that cloud hanging over their head.
  • Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short-sale payment as full payment for the outstanding balance of the loan, but the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
  • The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) sponsored the bill and urged lawmakers to pass this much-needed legislation.
  • “The signing of this bill is a victory for California homeowners who have been forced to short sell their home, only to find that the lender will pursue them after the short sale closes and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce.  “SB 458 brings closure and certainty to the short-sale process and ensures that once a lender has agreed to accept a short-sale payment on a property, all lien holders – those in first position and in junior positions – will consider the outstanding balance as paid in full, and the homeowner will not be held responsible for any additional payments on the property.”

If you are considering the sale of your home and you know that it will be a short sale, I would be more than happy to help guide you through the process as I am a Certified Foreclosure Prevention Specialist.Over the last 2 years 75% of my business has been short sale transactions. ALL of them have been successful.

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