California’s Short Sale Law
Breaking news on CA short sale law.
(a) (1) No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage, provided that both of the following have occurred:(A) Title has been voluntarily transferred to a buyer by grant deed or by other document of conveyance that has been recorded in the county where all or part of the real property is located.
(B) The proceeds of the sale have been tendered to the mortgagee, beneficiary, or the agent of the mortgagee or beneficiary, in accordance with the parties’ agreement.
(2) In circumstances not described in paragraph (1), when a note is not secured solely by a deed of trust or mortgage for a dwelling of not more than four units, no judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage for a dwelling of not more than four units, if the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage.
Following the sale, in accordance with the holder’s written consent, the voluntary transfer of title to a buyer by grant deed or by other document of conveyance recorded in the county where all or part of the real property is located, and the tender to the mortgagee, beneficiary, or the agent of the mortgagee or beneficiary of the sale proceeds, as agreed, the rights, remedies, and obligations of any holder, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust, or mortgage, and with respect to any other property that secures the note, shall be treated and determined as if the dwelling had been sold through foreclosure under a power of sale contained in the deed of trust or mortgage for a price equal to the sale proceeds received by the holder, in the manner contemplated by Section 580d.
(b) A holder of a note shall not require the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.
(c) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the deed of trust or mortgage, this section shall not limit the ability of the holder of the deed of trust or mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.(d) (1) This section shall not apply if the trustor or mortgagor is a corporation, limited liability company, limited partnership, or political subdivision of the state.
(2) This section shall not apply to any deed of trust, mortgage, or other lien given to secure the payment of bonds or other evidence of indebtedness authorized, or permitted to be issued, by the Commissioner of Corporations, or that is made by a public utility subject to the Public Utilities Act (Part 1 (commencing with Section 201) of Division 1 of the Public Utilities Code). (e) Any purported waiver of subdivision (a) or (b) shall be void and against public policy.
This section has caused one of the seconds we are negotiating with to halt all short sale negotiations while they consider the ramifications of this law.
There is a major chance that this law will turn out to be great for some homeowners, but will cause others to face foreclosure when they would have preferred to have a short sale on their record.
In short, people who work in homeland security should make sure they know all of their options before they move forward with a short sale.
I suspect short payoffs are going to become very important.
The logical path for second lenders is now to negotiate a short payoff prior to the commencement of a short sale with the first.
The logical course of action for most borrowers with assets or income and recourse loans, is to proceed cautiously and prior to commencing a short sale, determine if “prenegotiating” a short pay is possible.
Update in 2020
Some seconds did not cooperate and we had to use alternative methods to compromise their liens and loans. I would expect the same thing to happen again going forward.
Also… this is very important. In the past 10 years I have had multiple clients contact and told me the seconds sold of their loans to collection agents and they collection agents were out to get them. 1. The vast majority of our clients held out for better language in the banks approval letters. Most collection people went away when they saw the language. Some had to have the law explained to them. Some need to be threatened with law suits. Here is something to think about. Laws change… but written contracts do not. At some points lenders may seek federal protection of their rights to collect deficiencies. I would advise all people short payoff and short sales to avoid agreeing to short sales or other loan workouts in unless the lenders specifically release the lien and the deficiency from the loan balance.