S.B. 931 Bans Deficiency on First Mortgages After a Short Sale

News Flash: S.B. 931 Bans Deficiency on First Mortgages After a Short Sale

About Short Sales

If the governor signs this bill it’s possible that California short sale sellers with a first mortgage may no longer have to worry about a deficiency judgment after a short sale.

California sellers who are granted a short sale by a lender holding a first mortgage will now be exempt from a deficiency judgment even if that first mortgage was a hard money loan or a refinance. But will the governor sign it? Nobody at the Capitol seems to have opposed it so it seems likely.

Many banks have been unrelenting in their short sale approval letter verbiage on refinances, saying they will follow state laws to pursue a deficiency judgment. Some California lawyers argue that even if the loan was purchase money and exempt from a deficiency, such language allowed the bank to pursue sellers after closing a short sale because the approval letter changed the status of the loan. Short sales are different from foreclosures. Lawyers say a bank would need to pursue action most likely through an appellate court, and it’s too costly, but it doesn’t mean a bank wouldn’t do it. It is a big gray area and this law along with SB1178 should go far in clearing up the murkiness.

SB 931 applies to one to four-unit dwellings, non-owner or owner-occupied. Thanks go to Sen. Denise Ducheny for this legislation.