BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
EFFECTIVE IMMEDIATELY, ALL SHORT SALE LENDERS ARE NOW PROHIBITED
FROM PURSUING BORROWER/SELLERS AFTER CLOSE OF ESCROW
The California legislature just passed, and the Governor has signed, SB 458 which modifies and extends existing law, effective for transactions closing after July 15, 2011, prohibiting all short sale lenders from seeking a deficiency from the borrower/seller after a short sale on one-to-four residential units, regardless of whether the lender is a senior or junior lienholder, and regardless whether the property is owner-occupied or rented, or whether the loan is a refinance.
In addition, the law also prohibits all lienholders from requiring a borrower/seller to pay any additional compensation in exchange for a short sale approval. And, any attempt to waive this rule is void and against public policy.
But, unfortunately, a lender is not prohibited under the new law from attempting to negotiate for a contribution from someone other than the borrower, such as other lenders, buyer or the agents. Hopefully this will not be a common occurrence.
As with the previous law (SB 931– which applied only to senior lienholders), these protections do not apply to: (1) a borrower who commits fraud or waste (damage to the property so as to affect value); (2) a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; or (3) a lien secured by a specified bond or a public utility lien. Finally, additional rules apply if a note is cross-collateralized by more than one property.
PRACTICE TIP: Even though this law is now in effect, it is still recommended that listing agents advise their short sellers in writing to have the term sheets received from their lenders reviewed by their attorney prior to forwarding them to the buyer.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2011 7/19/11