The California Legislature recently enacted Senate Bill 931 generally prohibiting a deficiency judgment after a short sale for first trust deed lenders of one-to-four residential units. The following charts are easy-to-use reference guides for REALTORS® and their clients to determine the general applicability of anti-deficiency rules for short sales and foreclosures. These charts do not cover all aspects of any individual case or situation.
Short Sale Deficiencies Fact Sheet
|General Rule||Unless otherwise exempt, no judgment shall be rendered for a deficiency for a first trust deed lender of one-to-four residential units if the borrower sells for less than the amount owed with the lender’s written consent. A first trust deed lender’s written consent shall obligate the lender to accept the sale proceeds as full payment and to fully discharge the remaining debt on the first trust deed.|
|Effective Date||January 1, 2011|
|Applicability||First deed of trust for a dwelling of not more than four units.|
|C.A.R. Standard Form||C.A.R.’s Short Sale Information and Advisory (Form SSIA) paragraph 4A2 discloses this law to sellers and buyers.|
|Practice Tip||Regardless of the law, it would be prudent for a borrower to obtain the lender’s agreement to release the borrower from liability for the balance due on the note in writing and signed by the lender.|
|Legal Authority||The full text of SB 931, which adds section 580e to the California Code of Civil Procedure, is available at http://www.car.org/legal/2011-new-laws/.|
|Short Sale v. Judicial Foreclosure
Homeowner (1 to 4 units) Generally Protected Against Deficiency
|Type of Loan||After Short Sale||After Judicial Foreclosure*|
|First Trust Deed||Yes||Yes, if purchase-money and owner-occupied|
|Second Trust Deed||No||Yes, if purchase-money and owner- occupied|
|Purchase Money Loan||Yes||Yes, if owner-occupied|
|Owner-Occupied Home||Yes||Yes, if purchase money|
*Note: Certain exceptions may apply, including wiped-out junior liens, fraud, and bad faith waste. Also no deficiency judgment shall be rendered if a lender forecloses by trustee’s sale (CCP § 580d) or if a loan is seller-financed (CCP § 580b). See C.A.R.’s legal article entitled Deficiency Judgments and California Law, available for C.A.R. members at http://qa.car.org.
Readers who require specific advice should consult an attorney.
Copyright© 2011, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved. Written by Stella H. Ling, Esq.
The information contained herein is believed accurate as of January 26, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.