California Anti-Deficiency Law (Senate Bill 458)
Californian’s facing upside down house values have recently been given an important lifeline – something which happens far too infrequently in these uncertain times. No matter what your political preferences, you have to give kudos to the legislative process for passing Senate Bill 458 – it formally became law less than 12 months ago and is already having a SIGNIFICANT positive impact on residents who need to address their mortgage debt. In a nutshell, the law prevents lenders who accept a short sale from pursuing the borrower/seller for any deficiency after the sale and that’s HUGE. Before the law, if you owned a house in the state and were upside down on the mortgage, you might be able to get the 1st mortgage holder to work with you for a sale without a deficiency but the 2nd mortgage (and any other junior mortgages) could demand whatever they wanted, including extended debt obligations that often went for as long as ten years. For a borrower/seller who’s lost everything in the form of home equity, that was a bitter pill at best and for many, the last straw that tipped the scales to financial disaster. Now there’s some protection for the borrower who’s willing to take the initiative to find a buyer and go through the trouble of the short sale process. The bank’s will no longer be allowed to get the higher price that a short-sale provides (when compared to what the bank will get in foreclosure) and then demand even more from the very person who just got them a better deal.
No one wanted this economic mess and everyone’s played a part in creating it but now that it’s here, it’s refreshing to finally see something that actually helps the little guy.