In the case, Ms. Roberts owned a home in Three Rivers. She took out a 2nd mortgage. Unfortunately, she could not keep up with the payments on the first and second mortgage. As a result, she agreed to short sell the property in approximately 2010. As a part of the terms of the short sale, she agreed to keep making payments on the second mortgage until it was paid off in full even though she no longer owned the property.
As a brief aside, this type of transaction was common prior to July of 2011 -- The second mortgage would essentially hold a property sale ransom. The second mortgage lender would either make the borrower contribute additional money before closing, or make the borrower agree to remain liable, like Ms. Roberts. If they did not agree, they would not consent to the short sale, and the property would eventually be foreclosed upon.
In July 2011, the law changed. California Code of Civil Procedure, Section 580e, was amended to expand the anti deficiency protection in the event of a short sale to any deed of trust, including second deeds of trusts. This stopped second mortgage lenders from extortion. The amendment was enacted as urgent legislation, taking effect immediately. This relief was necessary because the protection lessened the impact of the foreclosure crisis and it would serve to encourage the approval of short sales as an alternative to foreclosure.
Back to Ms. Robert's case. Ms. Roberts she argued that the law change should apply to her, even though she made the deal with the lender before the law had changed. The Court disagreed. They held the law was not written to be applied retroactively. Therefore, Ms. Roberts was responsible for the contract she made with her second mortgage lender.
Thus, it appears that in this district the mortgage foreclosure relief act does not apply retroactively.
Ken Jorgensen, California Attorney
www.fresnolawgroup.com
Photo credit: http://www.flickr.com/photos/ell-r-brown/
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