SB458 – Short Sales in California just became SO much more attractive!

Los Angeles, CA – Just in, Governor Brown, signed into law today, SB458. This law will be written in the California Civil Code Procedures under CA CCP Section 580(e).

 

 

What this law states is that if a homeowner does a short sale, where the property has a 2nd Trust Deed, that 2nd lender/investor can no longer pursue the homeowner for the deficiency balance if they agree to entertain a short sale. If you recall, SB931, which came into effect as of January 2011, protected California homeowners from their lender/investor from coming after them for the deficiency balance on ONLY the 1st Trust Deed. What SB458 does now is that it encompass the 1st and 2nd Trust Deeds and protects the California homeowner from the possibility of their lender/investor from perusing the deficiency balance.

 

In Layman’s terms: If the 2nd Trust Deed Lender agrees to the short sale, they’re also agreeing to waive their right to collect on the deficiency balance!


There are two key things to point out here:

1) SB458 does not state that the 2nd TD Lender cannot ask for a cash contribution from the seller at closing.

2) SB458 does not state that the 2nd TD Lender cannot ask for a unsecured note from the seller at closing.

 

Thanks for reading this, Jennifer Escobar.

 

Jennifer is a Real Estate Agent at Qwest Real Estate.


My BLOG: CA Free Loan Modification Services | Los Angeles Short Sale

 

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Comment by Jennifer Escobar on July 21, 2011 at 2:56pm
After careful consideration about this law...It seems like it's going to hurt more than it will help, but only time will tell.
Comment by Joseph C. Alfe on July 21, 2011 at 2:49pm
it could also backfire (like HAMP) and make it more profitable for lenders to foreclose rather than short sale.
Comment by Joseph C. Alfe on July 19, 2011 at 12:44pm
this could backfire and have lenders denying short sales in favor of foreclosure.
Comment by Jennifer Escobar on July 18, 2011 at 9:34pm

This law only encompasses short sales…so the bank/investor still has some loop holes that they can consider. One would be to force the 1st to foreclose, by not cooperating and keeping their right to collect on the deficiency, as Terry mentioned. The second would be to force the senior lien to contribute a larger amount towards the junior lien.

 

Banks/Investors are very much aware that they will usually net more on a short sale as opposed to going through the foreclosure process and selling the home at a future date for a much lower net. The key here, I believe, is to make sure that the INVESTOR knows what’s going on with the transaction. The investor knows that the best loss is the first loss; which usually amounts to a short sale transaction. The reason for this is because the servicing company does not care…although, their servicing agreement states that they are required to pay the investor/bank even though the consumer is not making their mortgage payment. The reason for this is do to the fact that the servicing company collects that money back along with fees on top of that. So…long story short, the servicing company is turning a profit. I also believe that we'll probably see a spike in BK filings because of this...only time will tell!

 

Keep the investor in your transactions in the loop and they will help you through the process. I’ve learned that servicing companies prolong the process…the longer it takes the more profit they make! So I've been going through the investor more and more often to make sure that they're aware of what the servicing company is doing... I believe this will help to avoid stress and time!

Comment by Terry L. Osburn, SFR on July 18, 2011 at 5:46pm
However will the 2nds play hardball by, forcing the 1st to foreclose? Then still reserving their right to come back after deficiency? Or forcing the 1st to pay more to release the lien? I am referring to where there are two different banks involved here.
Comment by Chris B Johnson CDPE,SFR,HAFA on July 18, 2011 at 12:38pm

My personal experience with B of A is that they have already been negotiating 2nd's knowing this would be signed into law. Accepted the $3,000 on an investment property, no questions asked.

 

Would be interested in seeing what Chase does...

Comment by Terry L. Osburn, SFR on July 17, 2011 at 6:23pm

Yeah, I got an email from a California Attorney in re: to this today.

It will be interesting to see how the banks respond. 

Take it one day at a time.

Comment by Kyle Whissel on July 16, 2011 at 9:29pm
The big question...does this apply to both foreclosures and short sales, or just short sales?
Comment by Jennifer Escobar on July 16, 2011 at 6:42pm

Just like you Steve, I think this is going to be a catch 22!!! Since the 2nd cannot collect on deficiency, than I'm sure they'll be asking for a whole lot more to approve the release. BUT...I think this will also allow us to push the senior lien on contributing more towards the 2nd payoff. It will be interesting to see what happens in the months to come...

Comment by Steven Pawera on July 16, 2011 at 6:28pm

I still can not believe this was discussed almost NO WHERE.

Your's is the first mention on this site.  No mention of it on car.org prior to it being signed, not on the home page, not on the legal tab, not on the government affairs tab. - even though CAR was asponsor fo the legislation.  I've been watching that bill everyday since it landed on the governor's desk to see if it was signed yet. 

It's going to make a pleasurable short sale call on Monday, 'we'll accpet that approval letter'.  But I'm actually thinking of NOT asking them to correc tthe deficiency language, becuase knowing them (Chase), once they realize there is no more deficiency, they may want more to release the 2nd.

Funny story: I was on car.org, and used their 'contact us' feature to ask why they weren't mentioning the legislation, or sending a red-alert to get the governor to sign it quicker.  The email came back as undeliverable, 'carbeta@car.org is not a valid email address'.

Happy Carmaggedon!

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