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California Senate Bill 458 Forgives All Debt after a Short Sale

A new California law will further protect homeowners pursuing short sales by barring first and second lien holders from going after sellers for money owed after the short sales close.
Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (DSan Leandro,) into law becoming effective July 18, 2011.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be “short” of what is currently owed by the borrower. The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders. The new law now prohibits secondary lien holders from pursuing deficiencies after a short sale closes. The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said California Association of Realtors President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

Note: Do not rely upon the information in this document when making decisions relative to any real property that you may own as it is probably inaccurate. Contact a competent attorney or accountant to learn more and to assist with making informed decisions.