Not being attorneys, we are really not qualified to answer a question about whether the short sale lender will pursue a deficiency. Not to mention that each borrower’s situation (location of subject property, number or loans, loan originators, date of origination) is different. As such, the answer to a question about deficiency may be different from person to person, and loan to loan.
In California, on July 15, 2011, Governor Brown signed Senate Bill 458 into law. This law protects California short sale sellers from deficiency in all liens provided that the short sale closes and there were no extenuating or suspicious circumstances (read: fraud) when the loans were obtained. California’s anti-deficiency statute for short sales is not to be confused with the Mortgage Forgiveness Debt Relief Act of 2007 (an IRS thing) that relates to income taxes and short sales, and is currently set to expire at the end of the year.
Dan Dobbs sent out an interesting email several days ago in which he shares information on a court ruling that has opened the door for lenders with purchase money second trust deeds to pursue deficiency judgments against homeowners that have been foreclosed upon. You can read about the case here. The court ruling that Dobbs shares relates to pursuit of deficiency in a foreclosure (in California) and not the pursuit of deficiency in a short sale.
All of these different laws and rulings can be tough to wrap your head around. Short sale or foreclosure: Which one is better? Which one should your client select? That’s a personal decision.
Because there is so much information about short sale and foreclosure readily available on the Internet (and that info can create confusion), please encourage your clients to learn all the facts and understand their options (short sale, foreclosure, loan modification, deed-in-lieu) before signing the listing agreement. Who wants to spend time and money listing a short sale only to learn months down the road that the seller is not interested in selling any longer?
I’m sure you agree that it’s important for all parties to know their options. And, when it comes to options, we know that you have options, too. That’s why we, at Short Sale Expeditor®, are so very grateful to all of our short sale processing clients, and all of the loyal readers of our blog. Short sales can be pretty crazy, but you make it easy and fun to do what we do. And… we thank you for your loyalty and confidence in our business.