Sellers Not Liable to First Lien Holders After a Short Sale

We all know that a short sale is when the bank forgives the difference between what the seller owes and what they sell the house for.  A new law, SB 931 which goes into effect January 1, 2011, provides that lenders who approve a short sale on a residential (1-4 unit) property where they are the primary lien holder, have no right to pursue the borrower/seller for any deficiency or loss as a result of consenting to and accepting the short payoff.

This is huge, as up to now there has been the unanswered question, can the bank come after us for the difference between what we owed and what they made from the sale.

Some details:

1.  The consent of the first deed of trust holder to a short payoff obligates that holder to accept the short sale proceeds as full payment, and to fully discharge the remaining amount of the indebtedness on the note secured by at deed of trust. 

2.  This new law applies to ALL first deed of trust holders, whether purchase money, refinance, investor, etc.
3. The law does not apply if the borrower/seller is a corporation or political subdivision of the state.

4.  This law does not apply to any junior lien holders; e.g., second or third lien holders.

Effective Date:
While the law itself goes into effect on January 1, 2011, it does not specify what happens as of that date.  Is it new contracts ratified after that date?  Is it contracts that close after that date?   etc.
While not clear, it is LIKELY, but not a certainty, that this law applies to written consents received by short sellers from lenders after that date.  However, in every case you MUST consult your own attorney on this point. 

We’re going to take a look at all short sales today, all good values, so listen up…

91 CORONA ROAD, Carmel Highlands MLS #: 81006931 $1,400,000 Beds: 3 Baths: 3 (3/0)
$400,000 price reduction!  Park-like setting and early California Architecture,  this  Highlands home has it all.  High end kitchen, lush mature gardens, plenty of privacy and recent complete remodel.  Turn key potential.  SqFt: 2,900 Lot Size: 40,510 Sqft    check out photos on site www.pattyrosscarmel.com   |  short sale

24309 SAN PEDRO LANE, Carmel MLS #: 81029730 $775,000 Beds: 2 Baths: 2 (2/0)
Comfortable Carmel Cottage in Carmel woods. Upgraded master bedroom suite, plus separate entrance home office.  Large lot next to Pescadero Canyon greenbelt for added privacy.  Granite kitchen counter tops.  Located on top of Carmel Woods surrounded by decks and nature.  SqFt: 1,600 Lot Size: 7,000 Sqft    |  short sale

779 ALICE STREET, Monterey MLS #: 81051072 $479,000 Beds: 3 Baths: 2 (2/0)
Top-of-the-hill New Monterey home; spacious reverse floor plan w/vaulted ceilings & lots of light upstairs w/open family room-kitchen w/balcony for bbq; master upstairs, 2 beds, 1 bath & laundry on first floor; level lot is ideal for low-maintenance gardening w/private deck in back yard; quiet street is perfect walk to DLI; quick trip to downtown PG, Cannery Row, Monterey Bay and Aquarium!  SqFt: 1,438 Lot Size: 2,500 Sqft  |    short sale

1663 LAGUNA STREET, Seaside #: 81055524 $400,000 Beds: 4 Baths: 2 (2/0)
Bank has extended time to submit offers until 1/2011 & receive bank approval for short sale of $400K Unbelievable views, ocean, mountain & city lights!  Spacious & open floor plan, great for entertaining around the fireplace in living room under the soaring ceilings or step out on to the deck & enjoy the views!  Reports available for your review.  SqFt: 2,147 Lot Size: 3,750 Sqft  |   short sale


© Patty Ross, KRXA Radio Show #186, December 10, 2010