From the examiner.com:
San Diego homeowners who are considering a short sale of their troubled properties can rest easier today after Gov. Jerry Brown signed into law Senate Bill 458. The new law broadens previous short sales laws.Â
The previous law allowed homeowners to sell their homes at a value less than their existing mortgage value, and the first-mortgage holder had to agree that the sale was accepted as full payment of the obligation, with no recourse.Â
The new law, Senate Bill 458 requires the same “no recourse” treatment for any secondary, or other junior loans involved in the transaction. Up until now, it was possible for a homeowner to successfully complete a short sale, only to have the lender come back at a later date and require full payment for any short-falls.
Approximately 18% of all June home sales in San Diego were short sales.
Local real estate agents are applauding the new law.  A short sale transaction may take several months to complete because of the inability of lenders to make timely decisions. These same local real estate agents are now concerned that the lenders may take even longer deciding the merits of a short sale.
From CAR:
SB 458 (Corbett) Anti-Deficiency – C.A.R .initially sponsored SB 458 to revisit the “anti-deficiency” issue of SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger. As introducedSB 458 would have extended existing anti-deficiencyprotections to cover the refinance of purchase money mortgages, and new debt (cash out) incurred to acquire, construct or improve the home. C.A.R. and the lender groups reached an agreement to amend SB 458 to instead expand the provisions of existing law (SB 931 of 2010) which became effective this year. SB 931 requires a first mortgage holder to accept an agreed upon short sale payment as full payment for the outstanding balance of the loan, but does not apply to junior lien holders.
 SB 458 extends the protections of SB 931 to junior liens effectively providing that any lender that agrees to a short sale must accept the agreed upon short sale payment as full payment of the outstanding balance of all loans.  In addition, this measure will clarify that this rule applies only to residences.Â
This looks like Linda Ronstadt and the Eagles when they were touring together in 1975?
It seems to me that this will cause 2nd mortgage holders to be less motivated to agree to a short sale. My guess is that they have been selling or intending to sell their deficient paper and if they can no longer do that, they will demand more proceeds from the short sale or just plain old not agree to the short sale. My understanding is that in a foreclosure by a senior lien holder, the junior lien holders still have recourse after the foreclosure, so a 2nd mortgage holder may now be more motivated to deny the short sale and let the home go to foreclosure.
More government intervention will do just the opposite of helping the re market to stabilize.
That’s the Eagles, with Jackson Browne, Dan Fogelberg (3rd from right), and Browne’s talented sidekick David Lindley (1st left). Them was the days.
“More government intervention will do just the opposite of helping the re market to stabilize.”
I remain unconvinced that short sales are better for the overall stability of the market than foreclosures. Foreclosures almost always sell for full market value whereas short sales often sell for considerably less than market value.
Shady sales and backroom bank deals undermine buyer confidence which will further erode sales volume and ultimately market values.
As a recent buyer in this market, I would rather the market stabilize at a price point discovered by a fair and open market and justified by fundamentals even if it means that I will have to endure a substantial “paper loss” in the short term.
Seems like a good start to me.
I am unconvinced also.
Short sales might have gained some benefit to sellers with this new law guaranteeing no recourse, but it will only embolden the unscrupulous to take more advantage.
What is needed is laws/guidelines, and enforcement of same, to ensure open-market conditions. It is the shady off-market short sales that erode buyer confidence, and undermine values.
We’ll see if the lenders were counting on the collectors paying decent money for the paper. If they were, then they might as well not cooperate – and it could be the end of short sales.
Is that Joe Walsh in the right rear corner of that photo? He joined the Eagles in 1975.
Check this:
https://bubbleinfocom.wpenginepowered.com/wp-content/uploads/2011/07/eagles-jackson-browne-linda-ronstadt-sunshine-festival-Big-A-1975.jpg
Seems strange that CAR would be supporting this bill. If the junior lien holder can’t ask the borrower to contribute, but is free to try to negotiate contribution from others related to the transaction, doesn’t this just encourage the lienholder to beat up the agent to get them to kick in?
The other thing that seems a bit unclear about this bill is to what extent is this law retroactive. If a short sale closed a year ago with an approval letter that stated the junior reserved the right to claim a deficiency, is the junior now barred from suing for a deficiency? On first glance, the language of SB 458 appears to be silent on the issue.
As a practical matter, it may just come down now to the junior not “requiring” additional consideration from the borrower in recourse situations, but instead, -wink -wink-, being open to considering “voluntary” contributions from a borrower in order to release their lien. Hard to know how that distinction will ultimately be treated by the Courts.
I am going through a short sale at the moment, and I have a 2nd mortgage holder that will not even look at my short sale package without signing a deficiency agreement. I feel this will at least make them have to look at what the bank in offering. The problem thus far has been the only way to get the jr. liens to say “yes” to a short sale is by letting them pursue you for deficiencies. Of course, most people agree, and then are forced to file bankruptcy to get rid of them. Think how many bankruptcies can be avoided…since bankruptcy affects all the creditors, perhaps some will now be able to work ot arrangements with them instead of filing bankruptcy just to get rid or a 2nd mortgage???
I think this is a great start!!! I know I feel relieved…and if it takes longer for them to decide, it is just longer before they get paid and longer you can stay in your home!
I think this law is unconstitutional.
“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
Article 1, Section 10, Clause 1
But hey, hasn’t stopped the government(s) from passing all sorts of unconstitutional laws and regulations.
Dan, I think the key here is that the banks have a choice in that they do not have to accept the short sale.
“filing bankruptcy just to get rid or a 2nd mortgage???”
Strategic bankruptcy?
Yes, that is Joe Walsh in between Dan Fogelberg and Jackson Browne. Nice concert ticket. Must have been some show. I saw an unknown Fogelberg open for an ulmost unknown Journey in ’74 or ’75 in NYC. Just Fogelberg and a piano. Blew me away.
Is the new Senate Bill 458 a much welcomed send-off of the HAFA program in California? Could be! Although this may be a gutsy statement, this guy here is predicting the end of HAFA in California with the passage of this bill. Why?
PROTECTION FROM DEFICIENCY JUDGEMENTS
One of HAFA’s main benefits is the release of obligations by borrowers to lenders on second liens owed on the property in the event of a short sale. The property must be owner-occupied either at the moment or within 12 months from the sale of the property.
In California first liens are already unable to go after the difference. There are a couple of bills that take care of that, SB 931 and 580E. But prior to this new bill SB 458, homeowners were forced to go the HAFA route in exchange for protection from their junior lien holders coming after them for the difference.
SB 458 takes care of all that. With this bill, which was signed and NOW LAW effective immediately with any transactions that close from this day forward in California, junior lenders cannot go after homeowners for the difference if they agree to a short sale. This is now law.
This is huge because lenders just lost their ammunition in demanding more money on a short sale or else they will go after the seller for the difference after close of escrow.
And… This can be an investment property because it is not excluded from the bill.
And… This probably applies to HELOCs since it is not being excluded from the bill. More on this to follow.
MONEY FOR SELLERS AT CLOSE OF ESCROW
Another benefit of the HAFA program was that in the program, lenders are giving homeowners up to $3,000 for relocation costs, about 3 months of gas here in California.
Lenders are for the most part doing that anyway regardless of it being a HAFA short sale or not.
FREEDOM AT LAST
With HAFA, there are so many restrictions with one of them being a limited amount being paid to the second and not allowing anyone to pay the difference if the amount being offered by HAFA is not enough, therefore killing a deal in many cases if the second does not want to budge.
In fact, we have (by the end of this day I will say we HAD) a HAFA transaction where HAFA is offering a max of $6,000 to the second. The second lien holder wants $6,375 and will not budge. Believe it! But it gets better; HAFA will not allow anyone to pay the difference of the $375 therefore this deal would have died over $375 because the only way to make this hapen would be to have someone pay the difference out of escrow, which the last time I checked is illegal because you are not disclosing it in the HUD although it did in fact happen. And, the second lien holder asked us to do just that! As a side note, we are reporting this lender to the Attorney General’s office as this is fraud.
With the passage of SB 458 we can now have someone pay the extra $375 in escrow and it will be fully disclosed in the HUD statement to all parties as it should be.
With HAFA, you have to jump up and down when they say, how they say, and the process is cumbersome at best. The approved values that HAFA gives for listing properties are unreasonable and the whole system in many cases takes months just to get a HAFA approval. It’s tough enough working with short sales, adding HAFA to the mix makes it brutal.
With this new bill, we all have the freedom to negotiate more fairly and reasonably without all the HAFA restrictions and hoops that we have to jump for them. All this HAFA training that everyone offering and attending in my opinion will no longer be neccessary. I know, I paid for it myself and went through the guidelines and restrictions with a fine tooth comb and I still have questions months later. AND, to make matters worse, lenders themselves along their negotiators do not fully understand the HAFA guidelines.
Some have said that this is not a good bill because the junior lien-holder is more inclined to just let the property go into foreclosure and try and go after the seller for the difference. Well, I do not agree because with HAFA if they agree, they have to agree to a set amount. Without HAFA there is a little more freedom. I am not conviced that the existence of HAFA forces junior lien holders to accept the $6,000. They are going to accept the $6,000 if it makes sense period, not because of HAFA.
I myself am predicting the end for most HAFA transactions. I can’t say that I am sorry to see it go and am not sad that it was here for only a sort time. Trust me; HAFA, although will continue to exist, will not be a factor in California much longer. While this bill may not be the complete solution, because it could have some shortcomings which I am sure we will find out about down the road, it will eliminate another ridiculous obstacle that has many of us end up running around in circles.
Some attorneys who probably have never done a short sale in their life have said that this is disastrous because the lenders will just let the property go into foreclosure instead of agreeing to a lower amount. But those lenders are going to do that regardless of this bill and not because of this bill, and regardless of HAFA because lenders are not mandated to use the HAFA program. Lenders are lenders, they have their own agenda and if letting the property go into foreclosure makes sense to them, that’s what they are going to do. They don’t care about the homeowner, their kids or their pets, regardless of their commercials that portray community involvement, it’s all baloney. This is a fact that has been proven in these tough times.
What’s the better solution? Letting a lender do a short sale and then “try” and go after the difference after the sale? With this bill they can’t do that and I think that many lenders will end up accepting a small payment rather than take their chances later on trying to collect from borrowers who are insolvent, which just happens to be most short sale sellers.
The passage of this new bill is monstrous and a tremendous victory not just for REALTORS® but more importantly the homeowners that we serve. I don’t know that this will create more short sale approvals, only time will tell. But if it does not increase short sales and instead makes them easier as well as protect our clients, and in turn kicks lender’s butts, I am more than OK with that!
As always, we as real estate professionals can only give you real estate advice. It is always best to speak to a qualified CPA and/or tax attorney prior to making any decisions.
Does this include HOA’s as junior lienholders as well? I have had more recurrent run-ins at the last hurtle with the HOA’s who have given the file over to an attorney blocking the sale unless ungodly amounts, interest and legal fees be brought current. Please advise!
From: http://www.aroundthecapitol.com/Bills/SB_458/20112012/
Existing law prohibits a deficiency judgment under a note secured by a first deed of trust or first mortgage for a dwelling of not more than 4 units in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Existing law provides that written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage. Existing law specifies that those provisions would not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any 3rd party for fraud or waste if the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures that deed of trust or mortgage. Existing law makes these provisions inapplicable if the trustor or mortgagor is a corporation or political subdivision of the state.
This bill would expand those provisions to prohibit a deficiency judgment upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than 4 units in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage if the title has been voluntarily transferred to a buyer by grant deed or by other document that has been recorded and the proceeds of the sale are tendered as agreed. The bill would also provide that, in other circumstances, when the note is not secured solely by a deed of trust or mortgage for a dwelling of not more than 4 units, no judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage for a dwelling of not more than 4 units, if the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness, in accordance with the written consent of the holder of the deed of trust or mortgage. The bill would provide, following the sale, in accordance with the written consent, the voluntary transfer of title to a buyer, as specified, and the tender of the sale proceeds, the rights, remedies, and obligations of any holder, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust, or mortgage, and with respect to any other property that secures the note, shall be treated and determined as if the dwelling had been sold through foreclosure under a power of sale, as specified. The bill would prohibit the holder of a note from requiring the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale. The bill would provide that these provisions are inapplicable if the trustor or mortgagor is a corporation, limited liability company, limited partnership, or political subdivision of the state. The provisions would also be inapplicable to any deed of trust, mortgage, or other lien given to secure the payment of bonds or other evidence of indebtedness authorized, or permitted to be issued, by the Commissioner of Corporations, or that is made by a public utility subject to the Public Utilities Act. The bill would provide that any purported waiver of these provisions shall be void and against public policy.
This bill would declare that it is to take effect immediately as an urgency statute.
We are currently going through a short sale and have an 80/20 loan. The first and second have finally agreed on the terms with the second to release the lien for $9k, which again, the first has agreed to pay. The second made a “deficiency disclosure” at the end of the document that they would like us to sign that basically indicates they are releasing the lien but we are still responsible for the original loan. We just entered escrow and are set to close on 8/19. We have not signed this document because we are wondering if we waive our legal rights under SB 458 when they decide to try and seek a deficiency. Or, since Old Republic (second) is out of illinois they may not be aware of the new law…. We thought about completing an amendment to their document but are afraid we may scare the second away…
Any thoughts?
If you are in California the lender cannot collect anymore on any junior liens. Period, end of story. 🙂
So, we should go forward with signing and not make any amendment to reference the new law? We are in California….
I am out to dinner w friends and family and my answer is lengthy. I will reply in the morning.
Robert, thank you for your time and expertise! It’s greatly appreciated!!
Heather, here is my take on your situation; First and foremost, I am not an attorney or a CPA, I just play one on television. Just kidding obviously… The opinion I am about to share with you should be taken as an opinion and not a guarantee of any consequences that may or may not arise from your decision and you should ALWAYS seek the advice of a CPA and/or an attorney to give you the best advice and should rely on their advice to make a decision. This is only my opinion.
Having said that, I have dealt with lenders for many years, 25 as a licensed real estate professional. But more importantly, over the past 5 years or so in this housing crisis I have seen their true colors. Lenders are for the most part a group of stumbling, mumbling, fumbling fools. They really are. The people that they hire to “assist” with loan modification and short sale files are nothing more than a bunch of village idiots for the most part. Stay with me, I am going somewhere with this. I promise…
Lenders have shown me the ugliest side of mankind and our business. They will lie to you and say anything to get you to give them your last dollar. Not to mention Government’s last dollar which really are all of our last dollars. They have no integrity, scruples and would throw you out of your house with your newborn and family if they could make more money doing it.
I want you to know this because I want you to know what type of people you are dealing with for the most part and this could help you make the right decision for you.
The passing of SB 458 in California makes it unlawful for any junior lien holder to collect on a short sale from the moment that the bill was signed on forward. The bill was signed July 15th, 2011.
Because it is a bill that is exclusive to California and it is fairly new, many other states are not aware of it yet. But as I stated earlier, you are dealing with people who are incompetent and the right hand does not know what the left hand is doing. Again, I am going somewhere with this, I promise.
As I previously stated, lenders have very little morals and if you remind them or advise them of the law, there is a strong possibility that they may pull the approval and insist on more money. That is the chance you are going to have to take. I am sure that they are not going to be too happy when they find out about SB 458.
If you sign the amendment, chances are title will catch it because I believe that all escrow officers may be versed by their legal department about SB 458. If it has not happened, I imagine it will happen soon so agreeing to the amendment will probably not make you liable for that debt as it would be an unlawful amendment or contract. Any agreement that is unlawful when you enter into it is not enforceable. Collecting a deficiency by a junior lien holder after closing escrow is now unlawful. Period.
I believe that with your situation, you are going to have to let the lender know of the new law and just see what they say. Signing the amendment or addendum that you already know is unlawful will probably be void prior to close of escrow by title, unless you do not need to sign it in title. But if you have separate agreements that are not disclosed to all parties, this could be considered fraudulent. Maybe not on your part because you are an unknowing consumer, but I am just stating what I know.
I don’t think that you want a transaction about to close and at the last minute have title void the amendment and let the lien holder know as it could cancel the whole transaction altogether with them demanding more money. It is best that you are upfront with all parties and have your agent work with the new law and make it work for you and not against you. Being upfront and honest, although sometimes the other party does not deserve it, I believe is the best way to go and usually leads to happier people in the end.
So, having said all of this, I believe that you should seek the advice of an attorney prior to making a decision as you should anyways with any transaction.
Best of luck to you Heather, I hope that my information was useful.
Thanks Robert! Can you recommend an attorney? We were going to make an addendum to the 1 page form they are requesting we sign. However, I think we won’t create any addendum at all.
We are thinking of buying a new home and then short selling our townhome. We are currently upside down on our loans and really need to get into something bigger. For our townhome we have a first, and a second which is a heloc. Originally our second was for the balance of the loan that the first loan did not pay. Later on we took out a $100k heloc and paid off the original second loan. When we did this we signed a Open Ended Deed of Trust. I am wondering if the heloc is included in the new bill that just passed? Thanks.
Loan modification has been denied multiple times in the last 2 years. A foreclosure / sale date was just posted for my house today. How does this new 458 bill help me? I am not sure what to do… File bankruptcy? Too late for a short sale? I’m stuck with no where to go. Possibly to the street or can anyone suggest some life saving senarios. Thank you
Kingside is correct. I just received a revised approval from CITI Bank, who have for four months shown a total disregard for any rules or regulations on a short sale I am transacting. I am very experienced in short sales and have closed all of them for the past 2 yrs. They do not care about the new law and after I brought to the reps attention that it was illegal for them to require the seller to pay $5000 to obtain an approval, they not only will not remove the $5000 seller contribution, but have now cut the agents commissions to 2% after previously agreeing to 3%. This bill is going to do nothing but cause agents to back away again from short sales and banks are obviously turning up their noses to it, or at least CITI is.
what are the tax consequences if you settle on the second for 10 cents on the dollar, they release the lien and then you sell down the road and have a profit?
Are you doing a short-sale now? Or refi?
Steve,
Bankruptcy will get you an automatic 6-month extension, and then short-sell after that should get you a few more months.
But the end is near – one way or another you’re going to be moving in next 6-18 months.
458 doesn’t help in a foreclosure, the second lender would still have recourse. But if you can short-sell successfully, you’re in the clear.
If you are in San Diego County, contact me privately and I’ll give you more details.
So not clear – if you refinanced are you protected by this law or not?
Purchased in 2004 at $250K with 10% down. 1st at 280 and 2nd at 35K. Rates high. In 2005 refinanced 1st and 2nd into new 1st at much lower rates. (as most people did) In late 2005 opened Equity line of 48K. Used 16K in property repairs and 16k cash out that was used cash out. Hamp program 1st in 2010 at 309K and still carried EQ. Currently HAMP 1st is at 292K and EQ is at 24K. House is worth 199K. If I SS does my 1st and EQ qualify under this law or not?
How is this senate bill 458 a good thing?
This is going to kill short sales.
Only a Realtor and a Politician can make a good spin on this.
If the 2nd lender agrees to short sale they get pennies on the dollar, and nothing later
If they say no and let you get foreclosed on, they can go after everything.
Why would they do a short sale now?
I had my 2nd down to 2 offers, 15 % w/ a promissory note or like 60 % to pay it off, I’m going to assume the 15 % w/ the note is now off the table and I will now go into foreclosure.
If you want to help people, change this so they can’t go after you if you get foreclosed on, also. And retro active this to 2005.
458 is not a good thing, it is a GREAT thing. I don’t know why you come to a REALTOR® site to bash REALTORS®, doesn’t make sense.
Here is my take: A lender is going to foreclose regardless of the 458 or not. Would you rather have a lender do a short sale and maybe or probably come after you for the difference? Many people think transaction first and client second when in reality the client should be #1. If I am representing a seller in a SS, which I am doing right now a lot, would you prefer that I close the commission and have the lender go after the seller later? Am I doing a good deed to my client? I think not.
Well HAFA does not allow lenders to go after the difference, right? Lenders are not obligated to go the HAFA route and those that do are many times clueless on the procedure and unreasonable with the terms which sends it to foreclosure anyways because nobody will agree to the terms they are setting.
A lender is going to try and collect one way or another, either during the deal or after a foreclosure. This law is great and will be a tremendous help, I really believe that. And it if causes more foreclosures, which I don’t think it will, it will be minimal.
Lenders are going to work any angle to take your last penny, end of story.
You may be an exception, but the majority will benefit and like in any situation, not everyone benefits from certain laws.
Best of luck to you!
I hope that SB 458 causes lenders to quit approving short sales altogether, and make foreclosure the only alternative to making your payments.
The lack of laws and guidance is causing realtors to abuse the system, which in the end will hasten our demise.
SB 458 is causing yet another short sale to die because the 2nd would rather see it to go foreclosure so they can have recourse then accept the 18% of the outstanding loan amount. The sellers have both lost their jobs, they have no savings or retirement left, but the 2nd feels they can do better by letting the 1st foreclose “because of SB 458” according to the 2nd manager (Chase).
Jim, Why do you say bankruptcy will buy Steve 6 months? The last recourse before the trustee sale is typically bankruptcy and it nearly always postpones the sale 1 month.
I’m Extremely curious if there is some loophole here for Severely delinquent HOA Dues being included in this (where the HOA has recorded a lien on the property). The wording of the bill seems vague enough for all junior lien holders. Which would include HOA Assessment Liens. I’ve heard 3 different stories from 3 different HOA collection Attorneys, which scares me even more.
It’s almost unfair to the HOA’s if this bill includes Assessment Liens. This would actually push HOA Assessments higher because it would have to be compensated for in some way right? (HOAs completely losing out on any power in a short sale, and losing all monies owed BECAUSE they put a lien on the property). If this were to be true you wouldn’t be seeing any liens being put on a property by the HOAs, only a huge influx of court cases over HOA dues (like there isn’t enough of these already).
The only explanation that I’ve heard that I hope is true, is this bill has nothing to do with these types of liens. And it’s business as usual for HOAs.
Has anyone else had this explained to them, or what it means for short sales of properties with other liens against the property? (I know that some cities will record liens against a property for utility bills or even a contractor’s lien)
SB 458 only applies to lenders, not HOAs. It changes nothing as to HOAs. Involuntary liens such as judgments, mechanics liens, etc. are also not affected.
In one sense, this bill is very good for realtors. It removes the prior fiduciary trap of the unsophisticated seller walking into a recourse situation when closing a short sale. Now, although realtors should still refer the seller out for tax and legal counsel, it minimizes the risk of the seller later coming back after the agent claiming that the seller was put into a recourse situation just so the agent could get a commission.
In another sense, all California short sales are now like HAFA sales, non recourse. All that HAFA training that agents were buying is now especially worthless. Why waste time with HAFA at all now that they are all non-recourse? I would think that HAFA sales would now pretty much dry up. They are a lot of trouble just to get the seller a little moving money.
On the BK issue, a lender has to get BK court permission to continue foreclosing. Sure, in theory a lender could immediately move for relief from stay and get to the trustee sale within a couple of months after the BK is filed. These days, they just don’t seem to move that fast, and BK court is the one place in California where the MERS issue has some real leverage. If the lender in BK court cannot show with real evidence that they are a holder in due course of the note, and the debtor challenges standing, it can take a lot longer than six months for that trustee sale to take place.
As a buyer in a short sale. I have waited 5 months for the 2nd’s approval. We were going to settle with 10% of the balance going to the 2nd lien holder.
Now, thanks to 458, the 2nd has rejected the short sale and is demanding 50% which no one has. They said, that due to 458, they will just reject any offer less than 50% wait for the foreclosure and try to go after the seller which basically forces them to file bankruptcy.
With the introduction of this bill, most 2nd lien holders are just going to say screw it, kill the deal, and force foreclosure.
Language in the bill provides…”The bill would prohibit the holder of a note from requiring the trustor, mortgagor, or maker of the note to pay any additional compensation, ASIDE FROM THE PROCEEDS OF THE SALE (emphasis added), in exchange for the written consent to the sale.”
Query: If the junior lien holder’s written consent to the short sale contained language requiring the seller to sign a note for the deficiency, would not the note be illegal or unenforceable since it requires payment aside from the proceeds of the sale?
If the lenders try to force foreclosure, will the one action rule prevent them from perusing any proceeds from a second loan?
Good question, and if you ask me that is their one action – they had a chance to settle, and decided not to.
The answer probably won’t be known until a lawsuit over it is complete – check back in a couple of years!
A month into the era of no-recourse-for-all-short-sale-lenders, how is it going?
The U-T carried this comment:
Since the law has passed, agents have seen banks revise their release of lien amounts in letters to larger figures. In one case, the number was bumped from $12,000 to $30,000. “Right now, it’s hurting more than it’s helping,” said Jacalyn Blank, a San Diego short-sale negotiator.
John commented on the previous SB 458 post:
Was about to close on a short sale with $10,000 to the 2nd lien holder. Now thanks to 458, the 2nd wants $45,000 which no one in this transaction has.
JimG is a realtor who does his share of short sales, here’s his report:
Our short sale girl is reporting deals are being held hostage by 2nd lien holders who want MUCH more $$$$. California law is backfiring at this time as the 2nd lenders have no incentive to play.
We have two short-sales in process that have been caught up in the same mire:
SS #1 – The second lender, whose original balance was $250,000 and will get nothing if the 1st lender forecloses, is holding out for $100,000. At least the lender in third position is willing to take $3,000 on their $300,000 note.
SS #2 – Bank of America, who had agreed to take $25,000 on the second mortgage balance that was around $160,000, proceeded to sell the note to a no-name lender, who now wants $100,000. They too will get nothing if the first forecloses.
Of the 2,757 detached and attached sales in San Diego County last month, 515 of them, or 19% were marked as short sales. We can probably expect that short-sale closings are going to drop off over the next few months, and maybe forever – because what every short-sale negotiator is now trying to do is convince the first lender to settle for less. Hopefully the first mortgage holders get fed up and just foreclose instead.
I have a realtor told me that it is better to short sale now because the SB 931 and the SB 458 is only good until 2012? Is this true?
The actual bill:
http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.html
I don’t see anything that says 2012 in this version, but if so they would probably extend if it’s still a problem then.
my house sold as short-sale on march 23, 2011- we have a refi cash-out that the 2nd is trying to collect now, does this new law SB 458 apply to me?
I sold my condo in a short sale in April of 2009. Chase accepted 320K on 360K 1st. There was a 45K second. My realtor said in writing that they could not pursue me on the 2nd. My attorney told the collection agency the same. The collectors have stopped calling. The second, BTW, was a HELOC. It was 100% purchase money. No funds were ever taken out for toys or vacations or anything.
My fear is that the collectors may still come after me? I understand there is a 4 year statute of limitations.
I’ve talked to 8 attorneys. I can’t get a straight definitive answer from anyone. Some say I cannot be pursued (5). Three say I can. My understanding is that the HELOC was secured by the property. One attorney said it was secured by a promisory note that is separate and obligates me to pay.
I would like to clear the air once and for all. Is there anyone out there that can tell me once and for all what my liabilities are? g
I’m not an attorney, but you should just lie low and hope it blows over. There’s nothing you can do at this point except worry.
I have read all the comments on SB931 & SB458 However, I am still not clear on wheather SB458 applies to non-purchase money 2nds & Helocs on a short-sale transaction.
Robert Aldana,
Your statement needs some clarification, I believe regarding CA SB 458. It is my understanding that SB 458 extends the protection ONLY if they have approved the short sale.
I am in a situation where the second is demanding “all parties to the transaction” to contribute money in order for the 2nd to agree to a short sale and want an exhorbitant amount to approve.
If it does go into foreclosure, it is my understanding that the 2nd CAN try to go after the borrower. SB 458 only covers them if all parties approve the short sale. Any thoughts on this anyone?