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For many California real estate sellers who find themselves in a short sale situation due to falling home values, there is a black cloud following them after a successful close of escrow on a short sale.  In many cases, there is the possibility of the short sale lender or collection agency serving notice or even a lawsuit to collect all or a percentage of the forgiven debt.  This is cause for many sleepless nights for those who have completed short sales without getting key wording on their short sale approval letters prohibiting such action.

Governor Schwartznegger signed into law SB 931.  This bill will require a first lien holder who has approved a short sale payment to accept that amount as full payment for the outstanding balance of the loan and prohibits the lender from pursuing an additional deficiency judgment.  This covers ALL first mortgages, even if the borrower has refinanced or taken cash out.  It covers 1 to 4 unit dwellings, owner or non-owner occupied.

There are several caveats to be aware of:  this doesn’t go into effect until January 1, 2011 and this only applies to the first lien holder.  Junior lien holders may still pursue the borrower for a deficiency judgment.  Anyone going through a real estate short sale or foreclosure should consult with a real estate attorney and a tax expert.

Posted by John Meyer on January 4th, 2011 11:31 AMPost a Comment (0)
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