Alert! California Changes Law re Shortsales and Foreclosures

On July 11, 2013 Governor Brown signed into law SB 426 which expands the anti-deficiency language in Code of Civil Procedure (“C.C.P.”) sections 580b and 580d.

Presently, California has several anti-deficiency statutes that protect folks from a "deficiency judgment" when their home is sold for less than is owed on their loan, i.e., short sale. Another law stops a deficiency judgment for loans that were used to pay the purchase price of the borrower's home.  (Code Civ. Proc. Sec. 580b)  Without these laws, a lender who agrees to sell the property for less than the balance of the loan could sue for the deficiency.  For example, a homeowner owes $100,000 on a loan, and the house is sold for $90,000, the lender could sue for $10,000.  Of course, they would also sue for interest, penalties, attorney fees, etc. etc. Thus, California's anti-deficiency laws are important to homeowners suffering from a the drop in value to their homes. 

The problem with the old law was that debt collectors preyed on former homeowners.

Debt collectors would contact and harass borrowers after foreclosure in order to attempt to collect the debt.  They would assert that the anti-deficiency statutes leave the debt due and owing even if it cannot be pursued through the courts.  Unfortunately, many former homeowners would believe the collections agent, and they would make payments even though debts cannot be legally enforced. In addition, many creditors and debt collectors would also report debts as delinquent on the former home owner's credit reports, making it more difficult for borrowers to rebuild their credit after foreclosure.

I believe this amendment to the anti deficiency statutes is well suited.  The reason for theses laws is to limit the former home owner's loss to just the property.  By prohibiting the attempts of debt collectors from collecting on the debt only makes sense.

Ken Jorgensen, California Attorney
www.fresnolawgroup.com
 
Photo:  http://www.flickr.com/photos/37486024@N03/