CA Short Sales...good news?

[parsoc48]

Just read in the local paper that the state has passed a bill requiring lenders to accept the short sale amount as payment in full for all loans on the property

[justbroke]

I don't think this is anything more than a clarification of California's existing "no recourse" for purchase-money mortgages. Okay, it may actually be slightly better in that the lender can't go after you for deficiency in a short sale. However, short-sale situations could result in a 1099-C (forgiveness of debt) which is a tax issue. For homeowners, it shouldn't be an issue but always consult a tax specialist and a real-estate attorney on any short sale.

[knitty]

thanks, had forgotten about that

[HighUnder]

Just read in the local paper that the state has passed a bill requiring lenders to accept the short sale amount as payment in full for all loans on the property

Are you sure this is for all loans on the property? My understanding is that only the first mortgage would be barred from pursuing a deficiency in a short sale. It would be great if I am wrong about that!

[debee]

Are you sure this is for all loans on the property? My understanding is that only the first mortgage would be barred from pursuing a deficiency in a short sale. It would be great if I am wrong about that!

The new law covers junior liens as well. Once a short sale goes through, the second lender can't come after the homeowner for the deficiency. You can get more info by googling CA senate bill 458. It was signed into law in July. Full text here.

[HighUnder]

Thanks Debee. I wonder if this new law will result in 2nd mortgages approving less short sales, since they will have to accept whatever they get from the first mortgage as full payment. They could be able to collect more through a foreclosure. Hmm...

[debee]

I wonder if this new law will result in 2nd mortgages approving less short sales, since they will have to accept whatever they get from the first mortgage as full payment. They could be able to collect more through a foreclosure. Hmm...

I was thinking along similar lines. If foreclosure doesn't yield a better deal, there's still the option of pursuing the homeowner (presuming no bk).