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California Short Sale Laws: A Guide

It’s important that homeowners have a good understanding of California short sales laws prior to starting the short sale process. In this guide, we’ll explain short sale laws in California.

Deficiency Judgment

When you sell your home in a CA short sale, the lender agrees to accept less for the home than what it’s worth. In certain cases, the lender can later pursue you for the difference between the amount of the loan and the sale price of the home in what is called a deficiency judgment.

A California short sale law, Senate Bill 931, which was enacted January 1, 2011, prohibits a deficiency judgment on first mortgages where the home is sold for less than the remaining amount of debt. Second or additional mortgages are not covered under this bill.

However, in the vast majority of cases, deficiency judgments on second mortgages can be avoided through negotiation with the lender. During the negotiation of a short sale, lenders will try to determine how much money and other assets the homeowner has. One of the reasons they do this is to determine whether they might have an opportunity to collect additional monies from the homeowner at a later time. Sometimes the lender asks the homeowner to sign a note that promises they’ll make future payments to the lender, as a condition for approving the short sale.

If the homeowner is insolvent (their debts are greater than their assets) or nearly insolvent and has a hardship, then the probability of the lender collecting a deficiency judgment from the homeowner is relatively low. As a result, it is more likely the lender can be persuaded to waive their right to collect the deficiency.

In negotiations with the lender, the homeowner AND BUYER can request the waiving of the deficiency judgment as a condition of the short sale. As a result, lender agreements with this provision means the amount received by the lender from the short sale would become the full and final amount they receive. However, many real estate agents and THEIR other negotiators will not make this kind of effort because it creates extra work during the transaction phase.

How to Avoid a Deficiency Judgment

Real estate agents often don’t understand CA short sale laws or dedicate the time it takes to negotiate a waiving of the deficiency judgment. A skilled short sale negotiation team, like Proper-T-Solutions, can work with you and the lenders to get the deficiency judgment waived. Additionally, Proper-T-Solutions has investors/short sale buyers willing to contribute ADDITIONAL funds to help the seller avoid a deficiency judgment.

Do you want to learn more about California short sale laws – and how a short sale negotiation team can help you avoid a deficiency judgment? Contact Proper-T-Solutions today!