This document is a summary of a webinar on short sale deficiencies presented by C.A.R. attorneys. The webinar provided an overview of new California law that prohibits lenders from pursuing borrowers for deficiencies or deficiency judgments after a short sale. It discussed the applicability of the law, exceptions, examples of its protections, a comparison to foreclosure, and the agent's role in advising clients and listing short sales. The presentation concluded with an opportunity for questions.

1. 10/3/2011
Welcome to
C.A.R. Legal Live Webinar
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available at www.car.org/legal/live.
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Short Sale Deficiencies
Stella Ling and Sanjay Wagle
C.A.R. Attorneys
October 3, 2011
Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
Permission is granted to C.A.R. members only to reproduce and use this material
for non-commercial purposes provided credit is given to the C.A.R. Legal
Department. Any other reproduction or use is strictly prohibited without the
express written permission of the C.A.R. Legal Department. All rights reserved.
Today’s Agenda
Short Sale Deficiencies
A. General Overview.
B. Applicability of New Law.
C. Anti-Deficiency Protections.
D. Examples.
E. Comparison to Foreclosure.
F. Agent’s Role.
G. Questions.
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A. General Overview
Old Law (SB 931) New Law (SB 458)
Effective
1/1/11 to 7/15/11 On or after 7/15/11
Date
No deficiency judgment No deficiency or deficiency
Rule
after short sale judgment after short sale
Loan First trust deed Any trust deed
Property One-to-four residential units One-to-four residential units
Source: California Code of Civil Procedure § 580e,
available at www.leginfo.ca.gov.
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B. Applicability of New Law
1. Mortgage loan is secured solely by a deed of trust;
2. Mortgage loan is for a dwelling up to 4 units;
3. Property is sold for less than outstanding loan balance;
4. Lender gives written consent for the short sale;
5. Title voluntarily transfers to a buyer by grant deed or
other conveyance recorded in the county where the
property is located; and
6. Proceeds of the sale have been tendered to the lender
in accordance with the parties’ agreement.
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Exceptions to
Anti-Deficiency Protection
1. Borrower commits fraud or waste;
2. Borrower is a corporation, limited liability company,
or limited partnership;
3. Borrower is a political subdivision of the state;
4. Deed of trust or other lien to secure bond payment;
5. Deed of trust or other lien for public utility; or
6. Cross-collateralized loans have special rules.
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C. Anti-Deficiency Protections
Lender is generally prohibited from:
1. Collecting a deficiency;
2. Having the borrower owe a deficiency;
3. Requesting a deficiency judgment;
4. Having a court render a deficiency judgment;
Old Law
5. Requiring borrower to pay additional
compensation, aside from the proceeds of the
sale, in exchange for a written short sale approval.
6. Requiring borrower to waive his or her rights.
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Available at http://qa.car.org under the “Foreclosure and Short Sales” category.
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D. Examples
I. After close of escrow, can a collection agency go after
Seller for a short sale deficiency?
II. In negotiating short sale, can the lender require Seller
to pay $5,000 to the lender or $5,000 in closing costs?
III. In negotiating short sale, can the lender require Seller
to sign a promissory note to repay the deficiency?
IV. In negotiating short sale, can the lender require a
higher sales price?
Anti-Deficiency Protections:
1. Cannot collect a deficiency;
2. Cannot have borrower owe a deficiency;
3. Cannot request a deficiency judgment;
4. Cannot have court render a deficiency judgment;
5. Cannot require borrower to pay additional
compensation to obtain short sale approval; and
6. Cannot require borrower to waive rights. 9
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Statutory Language
Source: California Code of Civil Procedure § 580e(b),
available at www.leginfo.ca.gov.
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E. Comparison to Foreclosure
Source: C.A.R.’s Short Sale Deficiencies Fact Sheet.
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E. Comparison to Foreclosure
(Credit)
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5. 10/3/2011
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E. Comparison to Foreclosure
(Credit)
Minimum time frame for reestablishing credit
under Fannie Mae guidelines
Short Sale 2 years
Foreclosure 7 years
Foreclosure with extenuating
3 years
circumstances
Source: Fannie Mae Announcement SEL-2010-08
(dated June 23, 2010).
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F. Agent’s Role
1. New law reduces agent’s potential liability.
2. Prudent to disclose new law to clients.
Revised C.A.R. form Short Sale Information
and Advisory (SSIA) to be released
November 2011.
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Available at http://qa.car.org under the “Foreclosure and Short Sales” category.
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F. Agent’s Role (Cont’d)
3. Use the new law to solicit new short sale
listings.
4. Prescreen short sales based on the
amount of deficiency.
5. Do not give legal advice to clients.
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7. 10/3/2011
Questions?
To ask a question, type it in the chat box on
your attendee console.
Do not ask a question involving a current
transaction with an agent in another office.
Direct that type of question to the Legal
Hotline at (213) 739-8282.
Sorry but we may not have time to get to
everyone’s question.
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Announcements
C.A.R. Legal Live Webinar
http://www.car.org/legal/live/
Recorded version of this webinar
should be available later today.
Next monthly webinar:
November 7, 2011
REO Transactions
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Thank You
Happy Fall!
For legal questions, C.A.R. members may call
our Legal Hotline at (213) 739-8282 or write to
“Contact Us” at www.car.org.
If you have any suggestions or comments about
this webinar, email stellal@car.org or answer the
survey at the end of this webinar.
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