Important news for homeowners in the process or contemplating a short sale.....The California Legislature has approved Senate Bill 931 (SB 931) which added Section 580e to the Code of Civil Procedure and goes into effect on January 1, 2011.

The new law states that "No judgement shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more that four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage."

Section 580(e) protects homeowners as well as investors, as it is not limited to consumer transactions, nor limited to homeowner occupied dwellings.

This new law is great news for most borrowers and sellers of real property involved in a short sale. The new California law provides that when the seller of a one to four unit residential property sells the property at a short sale, the first trust deed holder who consents in writing to the short sale cannot seek a deficiency judgment.

A few noteworthy exceptions: 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 first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.

A mortgage deficiency is the difference between the loan amount owed by the borrower and the purchase price of the short sale paid to the lender. In some states and some instances homeowners are protected and lenders can't pursue them for the deficiency. However, in some cases a short sale can leave you owing a substantial debt, which can be collected by garnishing your wages or other aggressive collection actions. 

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