Can My Lender Come After Me For the Difference?

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There are two types of loans in CA. That is “non-recourse” and “recourse”. A “non-recourse” loan is one you obtained to initially purchase the home. If you go through a non-judicial foreclosure process with a “non-recourse” loan the bank will not be able to come after you for the difference.

UPDATED 7-18-11: Due to CA Senate Bill 458, that modified the CA Civil Code Procedure 580(e), a bank may not come after a homeowner for the remainder of the balance on a short sale for any loan. Not only that but banks are not even allowed to ask for any money or contribution in the short sale process. This is a BRAND NEW law that went into effect on July 15th, 2011. There are a certain amount of exclusions for homeowners so it is important to talk to someone qualified and knowledgible in short sales. This law DOES apply to any home including primary residence, investment properties and second homes. If does NOT apply however for homes owned by a corporation or LLC. (see below for the actual law 580(e).

This may however cause some problems with short sales as 2nd lien holders may not accept a lower amount of money to go away and may ask for more money. This could result in the the 1st lien holder not contributing that the second wants and cause a foreclosure scenario. This again is why it is so important to work with an experienced short sale broker, to be able to get the two banks to agree to the short sale when there are two lenders involved.

The ultimate goal of a short sale, however, is to get a full release in an approval letter which will absolve you from having to pay back any deficiency. If you decide to work with me, you will have the opportunity to review the approval letter with a real estate attorney.

Here is the actual CA Civil Code procedure 580(e) that addresses short sales.

 

580e. (a) (1) No deficiency shall be owed or collected, and no deficiency
judgment shall be requested or rendered for any deficiency upon a note
secured solely by a deed of trust or mortgage for a dwelling of not more
than four units, in any case in which the trustor or mortgagor sells the
dwelling for a sale price less than the remaining amount of the indebtedness
outstanding at the time of sale, in accordance with the written consent of
the holder of the deed of trust or mortgage, provided that both of the
following have occurred:
(A) Title has been voluntarily transferred to a buyer by grant deed or by
other document of conveyance that has been recorded in the county where
all or part of the real property is located.
(B) The proceeds of the sale have been tendered to the mortgagee,
beneficiary, or the agent of the mortgagee or beneficiary, in accordance
with the parties’ agreement.
(2) In circumstances not described in paragraph (1), when a note is not
secured solely by a deed of trust or mortgage for a dwelling of not more
than four units, no judgment shall be rendered for any deficiency upon a
note secured by a deed of trust or mortgage for a dwelling of not more than
four units, if the trustor or mortgagor sells the dwelling for a sale price less
than the remaining amount of the indebtedness outstanding at the time of
sale, in accordance with the written consent of the holder of the deed of
trust or mortgage. Following the sale, in accordance with the holder’s written

consent, the voluntary transfer of title to a buyer by grant deed or by other

document of conveyance recorded in the county where all or part of the real
property is located, and the tender to the mortgagee, beneficiary, or the
agent of the mortgagee or beneficiary of the sale proceeds, as agreed, the
rights, remedies, and obligations of any holder, beneficiary, mortgagee,
trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust,
or mortgage, and with respect to any other property that secures the note,
shall be treated and determined as if the dwelling had been sold through
foreclosure under a power of sale contained in the deed of trust or mortgage
for a price equal to the sale proceeds received by the holder, in the manner
contemplated by Section 580d.
(b) A holder of a note shall not require the trustor, mortgagor, or maker
of the note to pay any additional compensation, aside from the proceeds of
the sale, in exchange for the written consent to the sale.
(c) If the trustor or mortgagor commits either fraud with respect to the
sale of, or waste with respect to, the real property that secures the deed of
trust or mortgage, this section shall not limit the ability of the holder of the
deed of trust or mortgage to seek damages and use existing rights and
remedies against the trustor or mortgagor or any third party for fraud or
waste.
(d) (1) This section shall not apply if the trustor or mortgagor is a
corporation, limited liability company, limited partnership, or political
subdivision of the state.
(2) This section shall not apply to any deed of trust, mortgage, or other
lien given to secure the payment of bonds or other evidence of indebtedness
authorized, or permitted to be issued, by the Commissioner of Corporations,
or that is made by a public utility subject to the Public Utilities Act (Part 1
(commencing with Section 201) of Division 1 of the Public Utilities Code).
(e) Any purported waiver of subdivision (a) or (b) shall be void and
against public policy.
SEC. 2. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the meaning of
Article IV of the Constitution and shall go into immediate effect. The facts
constituting the necessity are:
In order to mitigate the impact of the ongoing foreclosure crisis and to
encourage the approval of short sales as an alternative to foreclosure, it is
necessary that this act take effect immediately.