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August 10, 2011

Change in California Deficiency Law

SB 485: No Deficiency Judgments After a Short Sale
 
The California Legislature approved and the Governor has signed SB 458, which will eliminate any deficiency judgments that a holder of a Mortgage Loan may have against a Borrower after a short sale of a dwelling of 1-4 units that has been approved by the holder is completed, and also provides that no deficiency shall be collected or requested.  This legislation was passed as an urgency statute and became effective on July 15, 2011. 
 
It follows SB 931 which went into effect on January 1, 2011 and added Section 580e to the California Code of Civil Procedure. That section provides that no holder of a Note secured by a first Deed of Trust could obtain a deficiency judgment against a Borrower when a dwelling of 1-4 units  is sold in a short sale that has been approved by the holder. A short sale is a sale of the Secured Property for less than the remaining amount of the indebtedness due at the time of the sale with the written consent of the holder of the Deed of Trust.   The written consent of the holder obligates the holder to accept the sale proceeds as full payment of the debt. The prohibition against deficiency judgments in SB 931 applied only to first Deeds of Trust but included non-owner-occupied as well as owner-occupied dwellings.


 
SB 458 expands the prohibition against deficiency judgments in Section 580e to junior Deeds of Trust on the Secured Property. It is also applicable to owner-occupied and non-owner-occupied dwellings.  It does not apply when the property at issue is secured with multiple collateral (not solely the deed of trust or mortgage at issue).
 
Section 580e does not apply to Borrowers that are corporations, limited liability companies or limited partnerships.
 
For more information about this topic, please contact Julie Greenfield, (949) 230-3241, juliegreenfield@cox.net
 
For more information about the Business Law Standing Committees, please see the standing committees web page.

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August 10, 2011 in Legislation | Permalink

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Comments

Really great post. It's a lot to take into consideration.

Posted by: Kevin Porter | Aug 26, 2011 10:26:39 AM

Good to know the change in California Deficiency Law has the positive effect on the society..And thanks for sharing it..

Posted by: Loan Modifications | Dec 5, 2011 11:44:14 PM

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