SB 458: Is it retroactive? Should it be? Will it be? I suppose we'll find out soon.....
The California Senate Bill #458 that passed recently on July 15th, extends and clarifies that no pursuant of deficiency shall be allowed by any lienholder after a successful closing of a short sale.
The bill was mainly drawn up because it's predecessor, SB 931, did not specifically address 2nd and junior lienholders.
My question is: Is it retroactive?
If you read the bill in it's entirety, it really doesn't address it one way or another.
Which will probably mean one thing: The California courts will probably end up making an extension to the bill through judiciary law or "case law" should the state itself not pass an amendment to the bill addressing the issue.
As a certified short sale facilitator myself, I feel the answer is "yes, definitely".
But then the next question is "how far back should it be retroactive?"
In my opinion, it should be since the inception of SB 931, being that this new bill was derived from the fact that SB 931 did not clarify the issue. So in that sense, I feel SB 458 should be retroactive as of the date of enactment of SB 931.
Then there are other issues to address: What if a lienholder had already pursued a deficiency prior to both bills and the borrower entered into some kind of payment plan? Does this affect that contractual relationship?
And how does all this pan out being that California is an anti-deficiency state in general? Should this issue become a matter of case law, I would have to lean in that direction in that the state would uphold cases against the lienholder of a pursuant of deficiency after a short sale.
How do you feel about it? Should it be retroactive? Here' the exact verbiage from the bill:
Senate Bill No. 458
CHAPTER 82
An act to amend Section 580e of the Code of Civil Procedure, relating
to mortgages, and declaring the urgency thereof, to take effect immediately.
[Approved by Governor July 11, 2011. Filed with
Secretary of State July 15, 2011.]
legislative counsel’s digest
SB 458, Corbett. Mortgages: deficiency judgments.
Existing law prohibits a deficiency judgment under a note secured by a
first deed of trust or first mortgage for a dwelling of not more than 4 units
in any case in which the trustor or mortgagor sells the dwelling for less than
the remaining amount of the indebtedness due at the time of sale with the
written consent of the holder of the first deed of trust or first mortgage.
Existing law provides that written consent of the holder of the first deed of
trust or first mortgage to that sale shall obligate that holder to accept the
sale proceeds as full payment and to fully discharge the remaining amount
of the indebtedness on the first deed of trust or first mortgage. Existing law
specifies that those provisions would 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 3rd party for
fraud or waste if the trustor or mortgagor commits either fraud with respect
to the sale of, or waste with respect to, the real property that secures that
deed of trust or mortgage. Existing law makes these provisions inapplicable
if the trustor or mortgagor is a corporation or political subdivision of the
state.
This bill would expand those provisions to prohibit a deficiency judgment
upon a note secured solely by a deed of trust or mortgage for a dwelling of
not more than 4 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 if the title has been voluntarily
transferred to a buyer by grant deed or by other document that has been
recorded and the proceeds of the sale are tendered as agreed. The bill would
also provide that, in other circumstances, when the note is not secured solely
by a deed of trust or mortgage for a dwelling of not more than 4 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 4 units, if the
trustor or mortgagor sells the dwelling for a sale price less than the remaining
amount of the indebtedness, in accordance with the written consent of the
holder of the deed of trust or mortgage. The bill would provide, following
the sale, in accordance with the written consent, the voluntary transfer of
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title to a buyer, as specified, and the tender of the sale proceeds, 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, as specified. The bill would prohibit the
holder of a note from requiring 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. The bill would provide that
these provisions are inapplicable if the trustor or mortgagor is a corporation,
limited liability company, limited partnership, or political subdivision of
the state. The provisions would also be inapplicable 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. The bill would provide that any purported waiver
of these provisions shall be void and against public policy.
This bill would declare that it is to take effect immediately as an urgency
statute.
The people of the State of California do enact as follows:
SECTION 1. Section 580e of the Code of Civil Procedure is amended
to read:
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
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Ch. 82 — 2 —
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.
