From Dave Tanner from Northern California Based Hanson Law Firm PC recently wrote an article about SB 931:
With the passage of Senate Bill 931, a new section was added to the California Code of Civil Procedure that should be of great benefit to many short sale sellers. The new CCP §580e provides “No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more that four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.”
So what does that mean? The short sale seller generally does not need to worry about a deficiency judgment as long as the property being sold is a one-to-four unit residential and is only encumbered by a first deed of trust. Approval by the short sale lender discharges the remaining indebtedness. No need for the seller to negotiate a release of liability from that lender.
But I said generally, so what does that mean? The new law does not affect liability of junior lienholders. A sold out second may still be able to sue on the note. The new law does not apply to loans secured by other types of real property. The short sale seller of a fiveplex is not helped. The only relief is to short sale sellers of one-to four units.
Even if the note is covered by the new law there are still two exceptions. The first is for waste. Waste is a legal term for damage done by a person legally in possession that diminishes the value of the property. A simple example would be a short sale seller who, on the way out, takes out the built-in appliances or strips the lighting fixtures. The lender can still come after them for damages.
Tanner has been a real estate broker and real estate attorney for approximately 30 years, and has owned and/or managed residential and commercial brokerages for over 20 years. He currently serves on the Board of Directors and Professional Standards Committees at Sacramento, California and National Associations of REALTORS®. He is also on the MLS Committee and Board of Directors for Metrolist.
Tanner served as risk reduction manager for RE/MAX franchisees for over 13 years before deciding to join the Hanson Law Firm and make this service available to all brokers, large and small.
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