This is not news, but it IS critical for any Seller thinking about listing their home as a Short Sale in California in 2012. Remember the MOST critical thing..the Debt Forgiveness Act expires on 12/31/2012. Will it be extended? Most likely. However..do you want to take that chance? Read on for a recap of our anti-deficiency law, 580e. It’s a fantastic protection for Short Sale Sellers in California!
One of the first things my Short Sale Clients ask me is, “How does the Deficiency work?” What they mean as a Short Sale Seller is, “Am I going to be sued for the deficiency by my Lender?
In a word, “no!”
The year of 2011 saw a very spescific change to the anti-deficiency law for the state of California. Section 580e of the California Code of Civil Procedure came into effect on Jan. 1. This law generally prohibited a FIRST TRUST DEED LENDER from obtaining a deficiency judgment. This law applied to 1-4 residential units.
Then on July 15, 2011 a bill was introduced that greatly broadened the powers of section 580e.
Now section 580e covers many types of mortgage loans for 1-4 residential units, including..
•Purchase Money
•Rate and term refinance
•Cash-out refinance,
•owner occupied
•rental
•second home or vacation home
(This Law has it’s exceptions! Other types of liens such as judgment liens, tax liens, or HOA liens are NOT exempt from deficiency pursuit by the note holders!)
WOW! Lots of encouragement from the Government to do a Short Sale instead of a Foreclosure.
So..you are protected from the second lien holder pursuit as well now. Your Lender may NOT..
•collect a deficiency
•have a borrower owe a deficiency
•request a deficiency judgment
•require a borrower to pay to get a short sale approved
•require a borrower to waive their rights
Tips:
Sellers: Although a Short Sale Lender cannot demand you contribute to get your short sale done, you may offer to pay something to get a deal to work.
Buyers: Carefully consider before you write your offer, HOW MUCH money a Lender is being asked to write off. Sometimes, if a Lender has to write off a huge deficiency, they COULD choose to not do a Short Sale and pursue their other options. Not a huge likelihood in California..but think about it.