Last Friday, Governor Jerry Brown approved a new California law authored by Senate Majority Leader Ellen Corbett. The 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.
A short sale is a real estate transaction in which the homeowners owe more on the loan than the property is worth in the current market. To sell the home, all lien holders must approve the sale. The new law, Senate Bill 458, builds on the protections offered by Senate Bill 931, a previous law that requires the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. However, it did not address junior lien holders. The new law now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.
In June, short sales made up 17.7 percent of Southern California home re-sales. This percentage is expected to increase with the approval of SB 458, because it is a safe alternative to foreclosure and bankruptcy. If a homeowner is able to short sell their home, he or she can no longer be held responsible for any additional payments on the property after the lender agrees to or accepts the short sale payment. The new law will bring closure and certainty to the short sale process, making it easier on homeowners.
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