The following charts are reference guides 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|
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).
Source is California Association of Realtors and this is for information only and not the providing of legal or tax services. If you have a question about your own short sale deficiency situation, whether a lender can sue you before or after short sale or foreclosure, you should contact an attorney.
By Harrison K. Long – Professional real estate representative, REALTOR and broker associate, HomeSmart Evergreen Realty – 949-701-2515 (phone) – ExploreProperties@gmail.com – CALBRE #01410855 – Now serving as an appointed director at the California Association of Realtors – also an attorney member of the California State Bar association #69137