Back in July a new law was signed into effect by Governor Jerry Brown aimed at helping California homeowners selling their homes through a short sale.
Previously, lenders who held second mortgages that were used for "cash out" purposes could seek deficiency judgements against borrowers for the balance that was forgiven through short sale. First mortgage holders however were not able to do so. The prospect of the future collection of the debt for many homeowners was a terrible proposition which is what brought about this change. Banks who hold second (or junior) liens on properties of no more than four units are no longer able to seek a deficiency judgement against the borrower no matter the original purpose of the loan if the borrower voluntarily sells the property.
What does this mean for you? If you have a second mortgage on your house and you do a short sale, the owner of the second mortgage cannot collect the balance of the debt from you no matter how large the amount was that was forgiven or why you took out the loan in the first place. This could mean a faster recovery of your credit and even the prevention of filing for bankruptcy.
Furthermore, banks can no longer require sellers to make a cash contribution or sign a promissory note at closing if the short sale lender and the buyer cannot come to an agreement on the sales price of the property.
What does this mean for you? After going through all the work to find a buyer for your house and completing a short sale your lender cannot make your short sale approval conditional upon you either signing a promissory note for a specified dollar amount OR mandate that you contribute cash out of your pocket at closing.
If you would like to read more about SB458 please email me and I can send you more detailed information.
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