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california legislation > SB 458

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|SENATE RULES COMMITTEE | SB 458|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524| |
|(916) 445-6614 Fax: (916) | |
|327-4478 | |
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THIRD READING


Bill No: SB 458
Author: Corbett (D), et al.
Amended: 5/16/11
Vote: 27 - Urgency


SENATE JUDICIARY COMMITTEE : 4-0, 4/12/11
AYES: Evans, Harman, Corbett, Leno
NO VOTE RECORDED: Blakeslee


SUBJECT : Mortgages: deficiency judgments

SOURCE : California Association of Realtors
California Bankers Association


DIGEST : Existing law prohibits a lender from receiving a
judgment for a deficiency after a short sale on a first
mortgage or deed of trust, as specified. This bill expands
that anti-deficiency protection for all mortgages or deeds
of trust, provided that the holder of the mortgage or deed
of trust consents to the short sale. This bill also
restates the above prohibition to clarify that the
provisions do not impact multiple collateral loans.

Senate Floor Amendments of 5/16/11 provide that the
homeowner may not be required to pay any additional
compensation, aside from the proceeds of the sale, in
exchange for the holder's written consent to the short
sale, add clarifying language and address concerns that
this bill's current language may permit debt collectors to
seek collection when a deficiency judgment is barred.
CONTINUED





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ANALYSIS : Existing law provides for procedures by which
a money judgment (a "deficiency judgment") can be sought
for the balance due on an obligation for the payment of
which a deed of trust or mortgage was given as security. A
court may render judgment for not more than the amount by
which the entire amount of indebtedness due at the time of
sale exceeded the fair market value of the real property or
interest therein sold at the time of sale, with interest
from the date of sale, as specified. (Code of Civil
Procedure ›CCP] Section 580a)

Existing law prohibits a deficiency judgment after the sale
of real property under a deed of trust or mortgage on a
dwelling for not more than four families. That provision
applies to loans that were used to pay all or a part of the
purchase price of the dwelling that was occupied by the
purchaser. (CCP Section 580b)

Existing law prohibits a deficiency judgment on a note
secured by a deed of trust or mortgage in any case in which
the property has been sold by the mortgagee or trustee
(lender) under a power of sale contained in the mortgage or
deed of trust. (CCP Section 580d)

Existing law prohibits a deficiency judgment on a note
secured by a first deed of trust or first mortgage on a
dwelling of not more than four units where the dwelling is
sold for less than the remaining amount of indebtedness due
at the time of sale with the written consent of the hold of
the first deed of trust or mortgage. Written consent of
the holder obligates that holder to accept sale proceeds as
full payment and to fully discharge the remaining amount of
indebtedness. (CCP Section 580e(a))

Existing law provides that if the mortgagee commits fraud
with respect to the sale, or waste with respect to the real
property, the above provision shall not limit the ability
of the holder of the first deed of trust or mortgage to
seek damages and use existing rights and remedies. (CCP
Section 580e(b))

Existing law provides that the above protections do not
apply if the trustor or mortgagor is a corporation or







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3

political subdivision of the state. (CCP Section 580e(c))

This bill revises the above provisions by striking
reference to "first," thereby applying the protections to
all of the mortgages or deeds of trust secured by the
property.

This bill expands 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 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 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. This bill also provides 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
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, in
accordance with the written consent of the holder of the
deed of trust or mortgage. This bill provides, following
the sale, in accordance with the written consent, the
voluntary transfer of 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. This bill
prohibits 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.

This bill additionally states that the section shall not
apply if the trustor or mortgagor is a limited liability
company, limited partnership. The section would also not







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4

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 which is made by a public
utility subject to the Public Utilities Act.

This bill provides that any waiver of the anti-deficiency
provisions in the bill by a covered person shall be void
and against public policy.

Related legislation . SB 412 (Vargas) is substantially
similar to SB 458. The bill is currently in the Senate
Judiciary Committee.

Prior legislation . SB 931 (Ducheny), Chapter 701, Statutes
of 2010, passed the Senate Floor (35-0) on August 19, 2010.

FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No

SUPPORT : (Verified 5/17/11)

California Association of Realtors (co-source)
California Bankers Association (co-source)
California Association Realtors
California Credit Union League
California Independent Bankers
California Mortgage Banker Associations


ARGUMENTS IN SUPPORT : According to the author:

"As the economic crisis continues to impact Californians,
short sales offer an opportunity for a homeowner to avoid
foreclosure. However, current law only affords
'anti-deficiency' protection for the first note or first
deed of trust in the event of a short sale. Current law
does not extend this anti-deficiency protection for
junior notes when a short sale occurs (i.e. second
mortgages)?

"SB 458 (Corbett) builds upon the protections laid out in
Section 580(e) of the Code of Civil Procedure by
protecting homeowners from deficiency judgments in all







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loans on a home, not simply the first note."

The California Association of Realtors, co-sponsor, further
notes that "SB 458 will bring together the desired
clarification of last session's bill ›regarding multiple
collateral loans] which is currently found in SB 412,
Vargas, and adds additional protections against post-short
sale deficiency liability to junior note holders (seconds)
when those lenders approve a short sale. It is important
to note that the short sale process remains voluntary on
every participant's part - only lenders that actually agree
to the sale will be affected, and sellers that cannot put
together an acceptable sale may still go to foreclosure or
even bankruptcy."


RJG:kc 5/17/11 Senate Floor Analyses

SUPPORT/OPPOSITION: SEE ABOVE

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