It is very simple to get a release of liability on a first lien. This includes investment properties, vacation homes, and even recourse loans such as cash out refinances. However with the passing of a new anti-deficiency law SB 931 it is now guaranteed. For all short sale closing dates beyond January 1st 2011, any first liens will automatically have a release of liability even if the short sale approval letter does not contain that specific language. This protects you from the first mortgagor pursuing a future judgement after approving the short sale payoff for all 1-4 unit properties both owner and non owner occupied. The loan could also be a cash out refinance loan. In the past lenders have attempted to claim entitlement to deficiency because there was no protection from anti-deficiency laws.
SB 931 does NOT protect you against junior liens, 2nd mortgages, or lines of credit. Therefore it is imperative if you have junior liens to attempt a short sale to protect yourself from future liability. In my opinion once the pipeline is less burdened by foreclosures and defaults the lenders will sit back & and say “Now it’s time to collect” They can go back and review initial loan applications when the loan was acquired taking a look at the borrower’s occupation and assets. They can make an educated guess at whom it would be worth pursuing for a deficiency judgement. Who is most likely to have income or assets to garnish.
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