New law gives added protection to short sale hopefuls

By Lily Leung

8 a.m., July 18, 2011

A new California law will further protect homeowners pursuing short sales by barring first and secondary lien holders from going after sellers for money owed after the short sales close.

Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (D-San Leandro,) into law on Friday.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be "short" of what is currently owed by the borrower.

Real estate tracker DataQuick said short sales made up 17.7 percent of Southern California home resales in June.

The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders.

The new law, which became effective immediately, now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.

"As the economic recession continues to impact Californians, SB 458 will allow homeowners forced to sell at a loss to have closure at the end of the process," said Corbett, in a statement to the Union-Tribune. "By extending anti-deficiency protection to all loans on a home when a short sale occurs, a homeowner can use a short sale as an alternative to foreclosure or bankruptcy."

The California Association of Realtors call the bill's signing a "victory for California homeowners."

"SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lien holders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property," said Beth L. Peerce, president of the Realtors group, in a statement.

Gov. Jerry Brown — Associated Press file photo

Senate Majority Leader Ellen Corbett

Source: Sign on San Diego