This blog is going to be of particular interest to all distressed home owners in San Jose CA but also all Realtors in California.
Provision #2: No More Seller Contribution
You may have heard about 2 provisions from Senate Bill #458, which was signed into law on July 12, 2011, by Gov. Brown, which are likely to sweeten the situation of short selling home owners who have more than one lender to deal with in California.
Provision #1: Extension of Debt Deficiency Protection
To put it simply, today, once a first lender (aka first lien holder) has agreed to a short sale, it cannot not go after the sellers for the balance of the unpaid loan. This is known as debt deficiency protection. However, other lenders, aka secondary lien holders, were still entitled by law to go after the sellers for the remainder of the debt left behind although they might have approved the short sale.
As of July 12, 2011, the debt deficiency protection has been extended to all lien holders. In practice all liens holders will no longer be able to go after the debt balance still owed by distressed home owners after they agree in writing to allow to short sale.
This is great news but I suspect that from now on, secondary lien holder(s) will ask for more money before agreeing to a short sale.
As I already pointed out in my previous blog
, the disagreement over the contribution given by the first lender to the second lender, can sometimes lead to a request from the second lender to be paid directly by the parties involved (buyers, sellers) unbeknownst to the first lender.
My advice was and remains: stay away from any direct contribution to the second lender as such practice might constitute a Mortgage Fraud or a RESPA Violation.
The new law states in particular that “the holder of a note shall not require the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale”. In other words, such practices are no longer tolerated.
Once again, this is a double edge relief measure as going forward, secondary lenders are likely to put more pressure on first lenders to receive higher payouts before approving a short sale.
At the end of the day, one can only hope that all lenders will act responsibly in the interest of their P&L accounts (reduce costs and sheer losses) but most importantly to prevent the potential upcoming tsunami of foreclosures coming from their housing “shadow inventory” ready to be foreclosed.