July 15th 2011 Senate Bill 458 was signed into effect by Governor Brown, prohibiting a deficiency after a short sale for primary residences of 1-4 units, regardless of whether the lender is in 1st, or 2nd and possibly even 3rd position. Lien holders can no longer require a borrower to owe or pay for a future deficiency when a successful short sale is completed. This law also prohibits any deficiency judgment to be requested after a short sale of one-to-four residential units even if the loan is recourse.
Lenders can no longer require a borrower to pay any additional compensation in exchange for a short sale waiver of deficiency rights. However the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale approval. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, and relatives.
Exceptions to the new law include a lender seeking damages for a homeowner’s fraud or waste, a borrower that transferred ownership into the name of an LLC/corporation or took out the loan at time of origination in the form of an LLC/Corporation, a political subdivision of the state, a lien secured by a bond as specified, or a public utility lien. Additional rules apply if a note is cross-collateralized by more than one property.
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Hello,
With this new law, can a second lender still give the seller a 1099S for the balance owed after a short sale?
Thank you!
Yes the 1099 is a separate situation.