Kingside is a real estate attorney, and our resident expert on short sales and the law. He left this comment yesterday about the new California SB 458, the non-recourse law for short sales:
SB 458 only applies to lenders, not HOAs. It changes nothing as to HOAs. Involuntary liens such as judgments, mechanics liens, etc. are also not affected.
In one sense, this bill is very good for realtors. It removes the prior fiduciary trap of the unsophisticated seller walking into a recourse situation when closing a short sale. Now, although realtors should still refer the seller out for tax and legal counsel, it minimizes the risk of the seller later coming back after the agent claiming that the seller was put into a recourse situation just so the agent could get a commission.
In another sense, all California short sales are now like HAFA sales, non recourse. All that HAFA training that agents were buying is now especially worthless. Why waste time with HAFA at all now that they are all non-recourse? I would think that HAFA sales would now pretty much dry up. They are a lot of trouble just to get the seller a little moving money.
On the BK issue, a lender has to get BK court permission to continue foreclosing. Sure, in theory a lender could immediately move for relief from stay and get to the trustee sale within a couple of months after the BK is filed. These days, they just don’t seem to move that fast, and BK court is the one place in California where the MERS issue has some real leverage. If the lender in BK court cannot show with real evidence that they are a holder in due course of the note, and the debtor challenges standing, it can take a lot longer than six months for that trustee sale to take place.
If the second mortgage lenders decide to stop approving short sales, or demand more money for which they are willing to settle, it’ll push more homeowners into bankruptcy phase, and foreclosure.
If second lenders deny the short-sale, you can bet it’ll be the last straw for many sellers, who by then will have bcome very comfortable with the free-rent program. They’ll be happy to choose foreclosure just to stick it to the mean old lender, and then pass through bankruptcy court before or after to make sure they don’t get a penny.
If second lenders succeed in getting more contribution from agents and buyers, it’ll only because they are willing to give the house away. I would think that the more the lenders stand to lose, the more strict they’ll be about verifying the actual value of the home. There won’t be many screaming deals on short sales without somebody kicking in extra dough.
Free-rent sounds so appealing if it wasn’t so egregiously against my conscious.
From the U-T:
A recent example was the signing of Senate Bill 458, which says if a bank servicing a junior loan accepts a reduced offer in a short sale and then discovers an outstanding loan on the property, the bank cannot go after the seller for money owed once the deal’s closed.
That law, which went into effect July 15, builds on a previous law, SB 931, which covered only servicers of first liens.
Short-sale specialists say the new law has great intentions but could have bad consequences for sellers and agents.
Banks, which follow their own in-house rules, likely will ask for more money up front since they can’t pursue deficiencies after the fact.
Whereas a second lien holder would’ve been happy with $3,000 to $5,000 to “release” the borrower from the lien, they’ll now likely ask for $20,000 to $50,000 up front, said Wannebo, whose focus is San Diego short sales.
Given that scenario, “the first lien holder may not pay that money, and that could lead to a foreclosure,” he said.
Since the law has passed, Wannebo and other agents have seen banks revise their release of lien amounts in letters to larger figures. In one case, the number was bumped from $12,000 to $30,000.
“Right now, it’s hurting more than it’s helping,” said Jacalyn Blank, a San Diego short-sale negotiator. “With anything, once the kinks get worked out, it will be good protection for the seller.”
Same thing here.
Was about to close on a short sale with 10K to the 2nd lien holder.
Now thanks to 458, the 2nd wants $45,000 which no one in this transaction has.
Way to go SB 458!
The actual bill:
http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.html