Senate Bill 458 – Prevents Deficiency Collection on Junior Mortgages After Short Sale

Governor Jerry Brown signed SB 458 on July 15th, 2011. This bill expands the anti-deficiency protection to all second lien residential mortgages on 1-4 unit properties. The bill prevents second mortgage holders from pursuing a borrower after the closing of a short sale for the remaining balance on a loan. One important item to note is this does not protect someone who goes through foreclosure. Junior lenders such as a second or third mortgage, including HELOCs can no longer pursue a deficiency after a short sale. This bill became effective as soon as it was signed due to the urgency clause placed in the bill. The new law also bars any short sale lender from requesting or requiring any contribution from the seller.

The text of SB 458 can be read at the following link: http://e-lobbyist.com/gaits/text/345467

Homeowners considering short sale should be aware that SB 458 does not apply to all real estate. The law specifically exempts the following circumstances:

• Where debtor is a corporation, limited liability company, limited partnership, or political subdivision of the state. C.C.P. 580e(d)(1).

• Where debtor engages in fraud in the sale or waste of the property C.C.P. 580(e)(c).

• A lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property. C.C.P. 580(e)(d)(2).

To determine if your real estate is protected under these laws, contact a local real estate attorney of our office to advise you of your rights.