Does California Short Sale Deficiency Exist?
 
 

The simple answer is "No".  It is no longer possible to have a California Short Sale Deficiency Judgment.  California passed two bills in 2011 that completely protect almost all homeowners from any type of deficiency liability after a California Short Sale:
 
· In January, SB931 went into effect, which protects California Short Sale homeowners from deficiency liability on first mortgages.
 
· On July 15, 2011, SB458 was signed into law which broadens the California Short Sale protections from SB931 to ALL loans on residential 1-4 unit properties, including junior lienholders (2nd and 3rd mortgages).

These protections are broader than the anti-deficiency laws in place to protect a property owner after a California Foreclosure.  Here are the two key differences:
  1. The California Foreclosure Anti-Deficiency protection does NOT apply refinanced loans.  It only is applicable to loans that were originally taken out at the time of purchase.  So if you have a loan that was refinanced or a 2nd loan that was taken out as a home equity loan, you will protect yourself against a future deficiency judgment by doing a California Short Sale, but not by allowing your bank to foreclose on your property.
  2. The California Foreclosure Anti-Deficiency protection does NOT apply to non-owner occupied properties.  So if your property is a rental or 2nd home you can protect yourself against a future deficiency judgment by completing a California Short Sale, but not by allowing your bank to foreclose on your property.
 
Exceptions include a lender seeking damages for fraud or waste, a borrower that is a corporation, or a borrower that is a political subdivision of the state.
  

 
 
California Short Sale v. California Judicial Foreclosure 
California Homeowner (1 to 4 units) Generally Protected Against Deficiency
Type of Loan
After California Short Sale
After California Judicial Foreclosure* 
First Trust Deed (1st loan)
 YES
ONLY if purchase-money AND owner-occupied
Second Trust Deed (2nd or 3rd loan)
 YES
ONLY if purchase-money, AND owner- occupied
Purchase Money Loan
 YES
 ONLY if owner-occupied
Rate-and-Term Refinance (Refinanced loan)
 YES
 No
Cash-Out Refinance
 YES
 No
Owner-Occupied Home
 YES
 ONLY if purchase money
Non-owner-Occupied Home
 YES
 No

The 2011 Legislation makes a California Short Sale the obvious choice for distressed homeowners who want to protect themselves for any future judgments, as well as protecting credit.

 
Please complete the form below or call us at 714-989-6176 for a no-cost, no-obligation, confidential foreclosure prevention consultation.


This information provided for educational purposes only.  Please do not consider this legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Please consult an attorney & CPA.