Short Sales and SB 458

Short Sales and SB 458.    Realty Professionals  805-474-7040.  SB 458 ( July 15,2011) protects homeowners that successfully negotiate a short sale of their property from a deficiency judgment by the lien holder.  A short sale occurs when a homeowner who owes more than what the property is worth and sells their home for less than what they owe on the mortgage with the approval of the lender(s).   Any unpaid balance is known as a deficiency.   The law applies to both primary and investment properties that are  4-units or less.

Realty Professionals 805-474-7040

 
SB 458 effectively extends the anti-deficiency protections provided by SB 931, also recently signed into law in 2010.  Under Senate Bill 931, if a holder of a first mortgage or a first deed of trust agrees to a short sale, the holder is required to accept the agreed upon short sale payment as a payment in full and entirely discharge the outstanding balance of all loans.   However, this law did not apply to junior lien holders.   Consequently, it was possible for homeowners to successfully complete a short sale, only to find the lender of the second mortgage to return and demand additional payments to compensate for any losses.

With the passage of SB 458, secondary lien holders are now too prohibited from pursuing deficiencies after a short sale closes. SB 485 includes all parties related to or represented by the lender in the transaction. As a result, in accepting a short sale, the borrower cannot be pursued by the lender, the investor on the loan, or the mortgage insurer after the close of escrow. Furthermore, the bill specifically states the lender is prohibited from requiring the borrower to “pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.”  This means it is illegal for lenders to request sellers sign a promissory note or contribute cash at close of escrow. It is important to note that SB 458 only applies to residential property.

Realty Professionals 805-474-7040

At the beginning of 2011, 27.3% of all home sale transactions conducted in California were short sales. The new law has been applauded by most real estate trade groups and is generally regarded as good news for California homeowners.  Said California Association of Realtors (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.”

For more information about Short sales contact Kevin Jones at Realty Professionals  805-474-7040.