Short Sale Deficiency? We don’t need no stinking Deficiency! How SB931 Can help YOU!

How SB931 Can Help You

Senate Bill 931 or SB931 is an anti-deficiency act that was introduced in the early part of 2010. It was passed through the State Senate and Assembly, formally signed by the Governor on September 30thof  last year and was enacted on the 1st day of January 2011.

In the case of short sales and foreclosures, when a property is sold for less money than what was initially owed on the property, the remaining balance is known as a deficiency. With the new SB931 regulation, homeowners are no longer liable for any deficiencies resulting from a property being sold at a foreclosure auction for less money than what was previously owed on the property.

Before SB931 was passed, the risk of having a deficiency judgment filed against you after a short sale or foreclosure sale was a real risk. When a home is liquidated through foreclosure proceedings or through a short sale for a dollar amount that was less then the current mortgage balance, the lender has the right to sue the distressed homeowner for the remaining balance, known as a deficiency judgment. So, assume that a homeowner owes $500,000 on their home and it is sold through a short sale or foreclosure auction for $300,000. The lender could sue the home owner for the balance of $200,000 in order to recoup their investment. This was a very tense situation for many distressed homeowners because while enduring the turmoil and embarrassment of losing a home due to foreclosure, they had to be cognizant of the fact that they still might be held liable for any deficient mortgage balances. Fortunately, now that SB931 has been passed, deficiency judgments are a thing of the past in the state of California.

It is important to note that SB931 is subject to certain stipulations that would qualify homeowners for the exemption, including:

-The loan must be a first mortgage in the first lien position.

-This regulation applies to individual homeowners and not to corporations or investment groups

-The initiative only applies to residential properties consisting on single-family and multi-family residences (up to 4 units)

-SB931 does not apply in the event that a loan was initially acquired via a fraudulent manner or if fraud was committed in the sell of the property.

As long as the qualifications are met, homeowners do not have to stress or worry about the possibility of having a deficiency judgment filed against them in the courts. If you are currently going through financial hardships and facing short sale or foreclosure proceedings, it is in your best interest to seek guidance from an experienced counselor and learn if you qualify for an exemption under SB931.