DEFICIENCY JUDGEMENTS IN SHORT SALES
Do the homeowners still owe the bank money after a real estate foreclosure? That is a good question. When a sucessful short sale is negotiated, the agreed upon price is payment in full.
However, homeowners may still owe the difference between the mortgage balance and the discounted amount as a result a “deficiency judgment.” If granted, this judgment will affect the homeowners and their credit report just as any other judgment.
You must get the bank to accept “payment in full without pursuit of any deficiency judgment.”
In California, there is a new bill that was recently passed. SB 458 has limited the amount that banks can go after borrowers for defiency.
LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED
In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.
Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.