Kingside is a real estate attorney, and our resident expert on short sales and the law. He left this comment yesterday about the new California SB 458, the non-recourse law for short sales:
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.
If the second mortgage lenders decide to stop approving short sales, or demand more money for which they are willing to settle, it’ll push more homeowners into bankruptcy phase, and foreclosure.
If second lenders deny the short-sale, you can bet it’ll be the last straw for many sellers, who by then will have bcome very comfortable with the free-rent program. They’ll be happy to choose foreclosure just to stick it to the mean old lender, and then pass through bankruptcy court before or after to make sure they don’t get a penny.
If second lenders succeed in getting more contribution from agents and buyers, it’ll only because they are willing to give the house away. I would think that the more the lenders stand to lose, the more strict they’ll be about verifying the actual value of the home. There won’t be many screaming deals on short sales without somebody kicking in extra dough.