The New California Short Sale Law

One of Matthew C. Mullhofer Attorney clients came into his office with a Real Estate question. She wanted to know the details surrounding the New California Short Sale Law. Mr. Mullhofer knew that the law was made to protect many homeowners, but there are many loopholes that a homeowner needs to be aware of.

The California Legislature recently passed Senate Bill 931 which added Section 580(e) to the California Code of Civil Procedure effective January 1, 2011. This new section is great news for most short sale sellers. It means that when a seller of a one-to-four unit residential property (occupied residential property that is the borrower's primary residence) with only a first deed of trust sells the property as a short sale the lender cannot come after them for the unpaid balance. This law states that by approving the short sale, the lender is okay with the seller not paying the unpaid balance.

There are some exceptions to this law, and they are: it does not apply to loans secured by other types of properties nor does it apply to second or other junior liens against the property. The new law also does not apply if the borrower is a corporation or a political subdivision of the state.

Two possible big exceptions are: if the borrower commits fraud and the second exception is if the borrower commits waste. In both of these situations the law will not limit the lenders ability to seek damages.

A type of fraud that may have occurred which would remove the protection that this law offers might be: giving false information at the time the loan was being obtained in order to be approved for the short sale for example, misrepresenting hardship or concealment of additional offers. This would be sufficient enough to open the door to liability for the unpaid balance.

Waste is a legal approach in which a party acts in a manner which takes away from the value of the property. For example, removing appliances or stripping electrical fixtures from the property. This could take away the protections this new law gives.

Even though there are some pros and cons to this law, Matthew C. Mullhofer Attorney explained that this new law is able to provide great protection.

Call Matthew Mullhofer Attorney at (714) 827-9955 to have your Real Estate questions answered today!