July 18, 2011: A new California law will further protect homeowners pursuing short sales by barring first and second lien holders from going after sellers for money owed after the short sales close.
Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (D-San Leandro,) into law on Friday. Full Text of the Bill here.
A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be “short” of what is currently owed by the borrower.
The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders. The new law, which became effective immediately, now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.
The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said California Association of Realtors 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 lienholders – 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.”
39 thoughts on “California Senate Bill 458 CA SB 458 Forgives All Debt After a Short Sale”
What about a Foreclosure? Under the Mortgage Forgiveness Debt Relief Act, is a second Mortgage also forgiven?
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I did a short sale with Chase 1st and 2nd mortgages in January 2011. The second agreed to take $6,000 from the first and my credit report says it was settled, but the 2nd was sold to a debt collector because at the siging table I was pressured into signing a form that said I was still responsible for the balance of the 2nd loan. I could have said no to signing and gone through a foreclosure, but the buyers had already signed and I just could not do that to them. I hoped it would all work out in the end and I would not be responsible after all. The creditor for the second has offered to settle for $16K on a $200K loan, don’t have the money to settle…do I need to try and settle with them for maybe what I can afford or just wait it out and hope for the best? Hoping that the new law fron July 2011 is retroactive and the debt collectors are just betting on the odds I will pay them something. Any advise?
No, it does not mean all is forgiven–It just means everything (including renegotiated obligations) is agreed and settled at time of short sale.
A defficiency can and undoubtedly will be made PART of the short sale conditions rather than a surprise showing up later tacked on after the fact.
Try to negotiate all of the loans on your house, including junior liens, at the same time you short sell it. That is the whole idea, to walk away from a short sale with all of your loans forgiven.
I am going to sell my summer as a short sale. I have junior lien on the property but is not the original second when I bought the house my wife refinance (the loan is under her name) and pulled little cash out.
Is that going to be a problem to be forgiven? And do we need to file bankrupsy has a attorney racomended us to do.
We sold our house via short sale in CA. We never had to pay the bank because we were fortunate to have refinanced our primary loan (not second) and we were protected by the CCPs. This new law is even better but I doubt retroactive. The sad part is that banks will continue to lie to borrowers to get them to pay like they tried to do to us. We posted all the documents to show how they treated us. Check it out at http://www.foreclosuredocuments.com.
Law, like medicine & real estate is a practice. The only constant in life is change! If you have a property in California, I can help you! Please contact me @ JHill@HillRealty.Org Please visit my web site @ http://www.HillRealty.Org UNLIKE many other realtors and MOST lawyers, the fees earned are a by product of serving the client. To serve the client is always the foremost objective in my perception of the real estate industry. If I may help you, contact me today! Good luck to everyone!
I think home owners who are considering a short sale should definately consult an attorney.
I work for a bankruptcy attorney in Ca and I can not belive it when I hear realtors whay, why should I refer my client for a loan modification when I can make xxx on a short sale..
So you may want to consider who is telling you that you dont qualify for a loan modifcation and that they do not work
From personal experiance I have obtained principal reductions on rental properties. This was with Chase.
Additionally working with an attorney vs a realtor on a loan modification or short sale you now your legal possibilities of a deficiency balance will be answered and taken care of.
A realtor can not answer legal questions.
As a home owner myself first who is working with the banks on a loan I know what it is like to have a home that is upside down several hundred thousand dollars. However,, if we sell now we will never get our down payment back. Even though it is upside down we have a very nice tax right off that we would never have in rental. About $60k a year of tax right offs!! Tell me that is not worth keeping my home even when it is upside down.
Lisa Edgar Dickman Law Firm
We completed our short sale with Chase in Jan. 2011. Our first and second loans was with the same lender ‘Chase’. We tried to negotiate with the 2nd loan but Chase refused. So we went through with the Short sale because we didn’t want to lose another buyer and more importantly have a foreclosure on our credit history. Chase sold our second to third part collection(s) who is trying to collect on the full amount. Here are some areas that I hope works for us. (1.) SB 931 protects us with the 1st loan and now SB 458 effected immediately. I like to fight that SB 458 would be retro to the effective date of Jan. 1 2011 when SB 931 was active since it covers the loop hole of the bill. 2.) Because we have the 1st and 2nd loan with the same lender Chase, I would site the case Simon vs. Superior court CA. I would fight that a Short Sale is another form of foreclosure without the need of no court involvement. and 3.) Hopefully we would fall under the Status of Limitation. Time will only tell!
We have (in so many ways) to do the right thing! We have no house and no savings and now Chase is still trying to get more from us when they already got their bailout and got their insured money. We have tried to do the right thing. We would love to have an attorney represent us but we don’t have the money to do so.
I will never put my money in any of the big banks! Credit Unions, local small banks, etc is the way to go. Occupy Movement must keep going!
Enough is enough Chase!
If there are any class action suit that applies to my comments above, please let me know.
Please tell me anybody, what else we can do. I pray everyday for this to end. God bless you all!
I need to find someone with legal advise to advise my mother regarding a short sale situation with Wachovia/Wells Fargo. Please email email@example.com if you can help.
thank you,… yes, I’m quite aware that “we” all helped bail these very banks out, that is what makes me so mad. I feel that I have already “paid” this debt off!
It looks as though there is still no word as whether this law will be considered Retroactive.
For those in California that did a short sale prior to the enactment of SB458 you may consider looking in to the $26bill mortgage lender settlement at http://www.nationalmortgagesettlement.com. If your second lien was held or serviced by one of the 5 Mortgage Servicers in the settlement there may help for you, as it seems that a portion of the settlement is to be used to reduce those existing deficiency balances remaing from prior short sales.
Cross your fingers…
Also, please keep in mind that the banks recieved a HUGE bailout that came directly from you. It is the blood, sweat, and tears from yourself and your children that will pay for not only their mistakes, but for their salaries and multi-million dollar bonuses for many years to come. Had the banks NOT have recieved the bailout they would have been FORCED to renegotiate your loan or face bankruptcy themselves.
I have a question: I Short sold in Oct 2009, I now have collection agencies contacting on behalf of Chase (my second) trying to collect the balance due. I no longer live in CA and need to know if SB 458 applies?
Is this SB 931 & 458 wil be effective until they are revoked or they have expiration in themselves…
If there’s an expiration… when?..
This law needs to also state foreclosures are ALSO included, because what motivation does the 2nd lienholder have to accept the short sale? Stupid and nonsensical law… How many short sales with 2nd lienholders have been done in CA since this law was enacted? The banks look at foreclosure as more viable because they can go after the borrower if they deny a shortsale. Dumb politician that don’t understand economics 🙁
Since the lenders are tight on doing loan modifications, maybe this will help with short sales. Only time will tell.
I am working on a short sale NOW and have done several since then. SO far , the lenders have honored the new law. I will say Im like a monkey on their back every day . A lot of agents i hear rarely talk to the negotiators direcly , or they hire someone to do the job for them. I HAVE noticed doing it your self has been beneficial for MY clients and I . SO far I have had approval on every short sale. I have noticed less short sales for sale since this new bill 458
if this helps short sales that is great, but if banks don’t agree to short sale and the home is foreclosed can banks pursue deficiency?
My short sale was completed in Feb 2011 with a signed promissory note of $30,000. I was not paying on it, and low and behold I received my original promissory note back in Sept 2011 with a big CANCELED stamped across it.
Can someone answer this question that has been asked several times?
If the second will not accept the amount for a short sale and forces you into foreclosure.
Does this no-recourse bill SB458 help you from the second coming back to collect debt on a purchase money loan???? Please answer!!
I am an attorney who represents several clients who did short sales and are now being pressured by collection agencies for the balance due on the released second. There is existing law which makes it difficult for the second to succeed. I will be doing research to try to determine when a law is applied retroactively. If the law is considered procedural, it would apply to all litigation filed after July 15. That would be my position until a court tells me otherwise.
This will not apply to short sales that happened prior to the law taking effect. Partly b/c the 2nd lien holder must agree, and partly b/c it wouldn’t be given retroactive effect.
It applies to 2nds whether or not it is a purchase money loan or other kind of 2nd lien. Again, though, the 2nd lien holder must agree to the short sale in order for it to apply.
Question: The lender(s) must “agree” to accept the short sale as the balance. What does that do to your credit? How is it reported to the credit agencies (Experian, etc.)? Thanks!
This is a horrible bill and I do not believe it is retroactive. Second lien holders are not approving short sales now. Not only are they not accepting what the first is offering they will not counter with a new dollar amount because of how this bill is written.
I’m confused by this law SB 458, my escrow company sent me today 8/31/11 verbage that reads “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” because I asked them to include a contribution of cash on my behalf to the second td lender. I have an approved shortsale by the first td lender and the second td lender continues to demand 42% of the note balance and I can only afford to pay them 20% of the outstanding balance which includes the 10% the first td lender agreed to. They had originally offered to let me sign a note for the shortfall from closing proceeds as the first td lender will only pay them 10%. So they are basically demanding that I pay them cash at closing or the remaining 32% or they will not approve the sale. They are in fact asking me for money in exchange for their consent which is suppossed to be illegal. If I am forced into foreclosure they then get to pursue me for the entire amount. I don’t get how this helps home owners in trouble.
This is fantastic news for home owners who are looking to sell their homes. This will lead to more people selling property at lower prices, offering a fantastic buying opportunity for everyone else who has been sitting on the fence.
According to the Bill, enactment is ‘immediate’. Therefore I would understand this to mean: no retroactive, which is not the answer I want or you!
Nobody’s answering the question about this new law applying retroactively. I did a short sale in 2009, the 2nd lender GREEN TREE FINANCIAL took 14k to release the lien and allow the home to sell… but maintained the right to possibly collect in the future. I just received a court filing from thei attorney stating they want 144k. After speaking, they want to settle for 35k (still an astronimocal figure for me) and said that refusing this one time offer of 35k means they will pursue a judgement for the full 144k. I am now divorced, post shortsale, have no assets, but still have a job. So my question is, “is this law good news for me? Or does it only apply to folks that are “going” to file a shortsale in the future?” Is it too late for me because my shortsale was prior to the bill being signed? Or do I still have a leg to stand on since a court order or alternate agreement hasn’t been set yet?
How is this a good thing?
If the 2nd lender agrees to short sale they get pennies on dollar, and nothing later
If they say no and let you get foreclosed on, they can go after everything.
All promissory notes are still due and payable,
They need to change this so they can’t go after you if you get foreclosed on, then they will take what they can get on a short sale.
Yes, please answer above questions. Is this retroactive and would it apply to non-purchase money loans? And equity lines?
I did a short sale in 2008 and would be greatly relieved if the courts would consider this to be retroactive.
Is this for only purchase money loans? or even equity lines?
Question for Legal Professionals: Is there anything in the law that indicates that SB 458 is retroactive and would apply to homeowners that did a short sale prior to this law taking affect?
Great news for homeowners