So what does this mean for you? Well, in order to explain the answer to that question, you’ll have to know a few fun facts first. California is a single action state. That means that if you don’t pay your mortgage, the bank gets one opportunity to act to recover their losses. In many cases, that single action is foreclosure, in which case they reposes the property and then sell it to regain their investment. When short sales came along though, the waters got a little murky. It wasn’t clearly defined for us whether or not acceptance of a short sale agreement was legally considered the bank’s single action, after all that particular action is initiated by the borrower, not the lien holder.
BUT in 2010 SB 931 was ratified and said that primary lien holders on purchase money loans could NOT go after borrowers who short sold their home for a deficiency judgment after the fact. Great! Right? Well, by clarifying that primary lien holders were not able to pursue deficiency judgments, this law opened the door for junior lien holders to move forward. In effect, they could potentially come back to haunt borrowers who short sold their homes.
Well, that loop hole is no more! SB 458 was signed into law TODAY. All lien holders are now legally obligated to accept short sales as full settlement of the debt, and will absolutely not have the option to pursue borrowers who short sale the homes after the fact. Pretty cool day in real estate.
If you’d like to read the details for yourself, check out http://www.car.org/newsstand/newsreleases/sb458/#As always, From the first time home buyer to the savvy investor – from the seller with equity to the seller underwater and needing options – I am here for you. Sincerely, Jessica Hays