Senate Bill 931 – effective January 1, 2011
SB931 added Section 580(e) to the California Code of Civil Procedure. The is good news for most short sale sellers. It states that when the lender issues a short sale approval on a 1 – 4 unit property, they have released the seller from any liability for the unpaid balance and cannot come after the seller for the unpaid balance. The new law doesn’t apply to second or other junior loans against the property nor does it apply if the trustor is a corporation or a political subdivison of the state.
There are two potentially huge exceptions to the protection: The first is if the borrower/seller commits fraud and the second is the borrower/seller commits “waste”. The fraud that would remove the protection might have occurred at the time the loan was obtained or might be contained in the information provided to the lender to approve the short sale. Misrepresentation of hardship or concealment of additional offers might be sufficient to open the door to liability for the unpaid balance.
“Waste” is a legal concept in which the seller acts in a way that diminishes the value of the property. Acts such as removing appliances, stripping electrical fixtures or removing the copper plumbing could void the protections provided by the new law.
Read a copy of the Enrolled bill here:
http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0901-0950/sb_931_bill_20100930_chaptered.html
* Please consult your tax advisor for the complete criteria and guidance as to how these apply to your specific situation.
Senate Bill 458 – effective July 15, 2011
Senate Bill 458 extends the protections of SB 931 (2010), to ensure that any 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.
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 unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
“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 lienholders – 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.”
SB 458 contains an urgency clause making it effective upon signing.
Read a copy of the Enrolled bill here:
http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.html
