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LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED
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In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.
Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.
This law is fully set forth as Senate Bill 458 (Corbett).
7/15/2011
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In California, lenders who intend to foreclose on a property when the loan is delinquent typically use the nonjudicial foreclosure process also known as a trustee’s sale. This process is less expensive for the lender than the judicial foreclosure process. A nonjudicial foreclosure doesn’t require a court proceeding and, thus, is a more expeditious process. From here on, whenever the term “foreclosure” is used, it is referring to a trustee’s sale. With foreclosures being so prevalent and with so many homeowners being at risk of losing their homes to foreclosure, REALTORS® need to be able to assess whether they have sufficient time to market the property and close escrow before the property is lost to foreclosure. Therefore, this article provides a foreclosure timeline to assist REALTORS® in their assessment of the time remaining before a possible foreclosure occurs. Several recent laws have impacted the foreclosure timeline. The California legislature added an additional 90-day extension period after the recordation of the Notice of Default (NOD)—California Civil Code Sections 2923.52-2923.55. However, those statutes were repealed effective Jan. 1, 2011. Another law which expires Jan. 1, 2013—California Civil Code Section 2923.5--affects the foreclosure timeline but only for loans made between Jan. 1, 2003 and Dec. 31, 2007 on residential one-to-four unit owner-occupied properties. This law adds a 30-day borrower contact period before the lender may record the NOD. “Days” in the foreclosure timeline are “business days,” defined as all days other than Saturday, Sunday, and holidays. See California Civil Code Sections 7.1 and 9 for more information. FORECLOSURE TIMELINE FOR LENDERS Loans Made Between Jan. 1, 2003 and Dec. 31. 2007 on Residential One-to-Four Unit Owner-Occupied Properties | Other Loans | DAY 1: CONTACT THE BORROWER Under Cal. Civ. Code § 2923.5(a) the lender must contact the borrower by phone or in person to assess the borrower’s financial situation and explore options for avoiding foreclosure. During the conversation, the lender must inform the borrower of the right to meet with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. Note: In the 2010 case, Mabry v. Aurora Loan, the court held that a borrower can file an injunction to postpone the foreclosure sale if the lender doesn’t comply with this law, but cannot overturn the foreclosure sale once it has been conducted.
| | DAY 31: RECORD THE NOD The NOD must be filed in the county where the property is located. The language of the NOD can be found in Cal. Civ. Code § 2924c(b)(1). The NOD must include the lender’s declaration that it has contacted the borrower to explore options for avoiding foreclosure, tried with due diligence to contact the borrower, or the borrower has surrendered the property (Cal. Civ. Code § 2923.5(b)). Within 10 days after recordation of the NOD: A copy of the NOD must be mailed by registered or certified mail to the borrower/trustor and to any parties with a recorded Request for Notice as indicated in Cal. Civ. Code § 2924(b)(1). (Cal. Civ. Code § 2924b(b).) Within 30 days after recordation of the NOD: the lender must mail a statutory notice to the borrower as described in Cal. Civ. Code 2924f(c)(3).
| DAY 1: RECORD THE NOD The NOD must be filed in the county where the property is located. The language of the NOD can be found in Cal. Civ. Code § 2924c(b)(1). Within 10 days after recordation of the NOD: A copy of the NOD must be mailed by registered or certified mail to the borrower/trustor and to any parties with a recorded Request for Notice as indicated in Cal. Civ. Code § 2924(b)(1). (Cal. Civ. Code § 2924b(b).) Within 30 days after recordation of the NOD: the lender must mail a statutory notice to the borrower as described in Cal. Civ. Code 2924f(c)(3). | DAY 116 – 121: RECORD THE NOTICE OF TRUSTEE’S SALE The Notice of Trustee’s Sale must set forth the date, time, and place of the Sale. It must also include the total amount of the unpaid balance and reasonably estimated costs, expenses, and advances at the time of the initial publication of the Notice. It must be recorded, posted, published, and also mailed by registered or certified mail as well as first class mail to the borrower (Cal. Civ. Code § 2924f). 25 days prior to Trustee’s Sale: Notice of Sale sent to IRS in case there is an IRS lien recorded more than 30 days before the date of the Sale (Cal. Civ. Code § 2924b(c)(4); 26 U.S.C. 7425(b)). 20 days prior to Trustee’s Sale: Notice of Trustee’s Sale must be recorded at least 20 days prior to Sale (Cal. Civ. Code § 2924f(b)). 20 days prior to Trustee’s Sale: Notice of Sale publication begins (must run once a week for 3 consecutive weeks in a newspaper of general circulation) (Cal. Civ. Code § 2924f(b)). 20 days prior to Trustee’s Sale: Notice of Sale must be mailed by registered or certified mail to everyone who is entitled to receive a NOD. In addition, the Notice of Sale must also be mailed by 1 st class mail to the borrower (Cal. Civ. Code § 2924b(b)-(c)).
| DAY 86 - 91: RECORD THE NOTICE OF TRUSTEE’S SALE The Notice of Trustee’s Sale must set forth the date, time, and place of the Sale. It must also include the total amount of the unpaid balance and reasonably estimated costs, expenses, and advances at the time of the initial publication of the Notice. It must be recorded, posted, published, and also mailed by registered or certified mail as well as first class mail to the borrower (Cal. Civ. Code § 2924f). 25 days prior to Trustee’s Sale: Notice of Sale sent to IRS in case there is an IRS lien recorded more than 30 days before the date of the Sale (Cal. Civ. Code § 2924b(c)(4); 26 U.S.C. 7425(b)). 20 days prior to Trustee’s Sale: Notice of Trustee’s Sale must be recorded at least 20 days prior to Sale (Cal. Civ. Code § 2924f(b)). 20 days prior to Trustee’s Sale: Notice of Sale publication begins (must run once a week for 3 consecutive weeks in a newspaper of general circulation) (Cal. Civ. Code § 2924f(b)). 20 days prior to Trustee’s Sale: Notice of Sale must be mailed by registered or certified mail to everyone who is entitled to receive a NOD. In addition, the Notice of Sale must also be mailed by 1 st class mail to the borrower (Cal. Civ. Code § 2924b(b)-(c)). | DAY 135: LAST DAY TO CURE DEFAULT Up to 5 business days before the Trustee’s Sale, the borrower may reinstate the loan (bring the loan current) by paying the missed payments plus allowable costs. Note: If the Sale is postponed the date that the borrower may reinstate is postponed accordingly. (Cal. Civ. Code § 2924c(e).)
| DAY 105: LAST DAY TO CURE DEFAULT Up to 5 business days before the Trustee’s Sale, the borrower may reinstate the loan (bring the loan current) by paying the missed payments plus allowable costs. Note: If the Sale is postponed the date that the borrower may reinstate is postponed accordingly. (Cal. Civ. Code § 2924c(e).) | DAY 141: TRUSTEE’S SALE FORECLOSURE After the last day to cure the default, the borrower still has the right to redeem the property but he/she must pay the entire debt, plus interest and costs before the bidding begins at the Sale (Cal. Civ. Code §§ 2903, 2905). At the Trustee’s Sale, the property is sold through a public auction to the highest bidder. Title is transferred to the successful bidder by Trustee’s Deed.
| DAY 111: TRUSTEE’S SALE FORECLOSURE After the last day to cure the default, the borrower still has the right to redeem the property but he/she must pay the entire debt, plus interest and costs before the bidding begins at the Sale (Cal. Civ. Code §§ 2903, 2905). At the Trustee’s Sale, the property is sold through a public auction to the highest bidder. Title is transferred to the successful bidder by Trustee’s Deed. |
Bottom Line: The minimum time for a trustee’s sale foreclosure (nonjudicial foreclosure) is 110 days after the NOD is recorded for most loans (plus 30 days for loans made between Jan. 1, 2003 and Dec. 31, 2007 on owner-occupied residential one-to-four unit properties).
This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.'s legal products and services, please visit car.org. Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.'s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m. and Saturday, 10 a.m. to 2 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739-8350 to receive expedited service. Members may also submit online requests to speak with an attorney on the Member Legal Hotline by going to http://www.car.org/legal/legal-hotline-access/. Written correspondence should be addressed to: CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, CA90020 The information contained herein is believed accurate as of March 3, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Written by Sonia M. Younglove, Esq. Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved. |
A short-sale occurs when a home seller owes more on their mortgage than the home is worth in the current market.Now more than ever, banks are willing to negotiate short-sales. In fact, short-sales are estimated to become a much larger portion of the market-share in the several coming months. Currently, 7 out of 10 home-owners are walking away from their homes without talking to a professional. This phenomenon is not limited to a specific price-range or income level; the effects are far and wide.
We believe we can help. Lyon Real Estate has been invested in the greater Sacramento community for over 60 years; and we have assisted generations of our neighbors buy and sell their homes. We have recognized a need…and we're here to assist. Short-sales are not easy; the key is having a quality listing agent.
Lyon has implemented a series of advanced training short-sale continuing education courses for our agents; to ensure that Lyon agents are the most highly-trained real estate professionals in the area. With the completion of the courses, our agents are given the designation of Lyon Short-Sale Certification (LSSC).
What you need to know:The sale needs to be approved by the seller's lender as they will be accepting an amount that is "short" of the total loan balance plus transaction costs. Lenders typically approve short-sales for one of two reasons: first, the home seller has a "legitimate hardship" which typically include: - Loss of job
- Business failure
- Death of a spouse
- Severe illness
- Inheritance
- Divorce
- Separation
- Mandatory job relocation
- Medical bills
- Military service
- Mortgage (interest rate) adjustment
- Reduced income (including furloughs)
- Incarceration
Second, the home seller owes more to the lender than the home is worth in the current real estate market; a short sale is an attempt for the lender and home seller to avoid a foreclosure. |
Short sales, where the lender agrees to take less than amount due to them, have tended to sell for less than similar homes in the area. One reason for this is that short-sale listings usually don't look as good as the competition. Another reason is that short sales require lender approval.
Last year, lenders often took three to six months to respond to a short-sale offer. If the response was no, the buyer was out looking for another home after having wasted a lot of time. Many buyers who expected short sales to be good deals shied away from them altogether after having a few bad experiences.
Subsequently, the Obama administration put pressure on lenders to do more short sales and fewer foreclosures. Now a process that was laborious is much easier to navigate.
Before you put your house on the market, contact your lender or lenders to let them know you can no longer afford to keep the house and you will be selling it. Also tell your lender that due to the decline in property values in your area, you may not be able to sell for enough to pay off the mortgage.
HOUSE HUNTING TIP: Lenders usually won't work on a short sale until there is an accepted offer on the property. But doing a little ground work with your lender(s) can assist the process. Find out how long it will take them to process a short sale. This kind of information will be important to a prospective buyer. If buyers know they can expect a response from the lender in 30 to 45 days and not four to six months, they'll be more inclined to make an offer.
Try to work out a loan modification with your lender before you put your house on the market. If your lender agrees to lower the loan amount, your listing will be more attractive to buyers because the lender won't have to take as large a shortfall in order to approve the sale.
Most lenders won't allow credits from seller to buyer in a short-sale transaction. It's a good idea to have presale inspections done before you put your house on the market. The more information a buyer has about the property before an offer is made the better the chance that you won't end up in a situation where the buyer discovers defects that weren't previously disclosed and wants credits as compensation.
In most cases, it's worthwhile to make your house look as good as possible before putting it on the market. This will bring you a higher price, which reduces the amount you are short. This will make it easier for the lender to approve the sale.
You'll need broad marketing exposure to attract a wide range of buyers. It's important to hire an agent who is willing to put the time and effort in both marketing your property and dealing with your lenders. Your agent should be a good communicator who will keep all of the parties informed about the status of the sale.
It's important to consult with your attorney and accountant to review any documents that the lender requires before closing the transaction. Some lenders will require the seller to pay back the amount that the seller is short. A seller does not need to agree, but this could cause the transaction to fall apart.
You could owe tax on the amount of money the lender forgave, though the Internal Revenue Service does offer tax relief for those who lose their homes through foreclosure or short sales between 2007 and 2012.
It takes a lot of patience with him and perseverance to get through a short-sale transaction. However, a short sale might negatively impact your credit for two to three years; it would be five to seven years if you let the property go to foreclosure.
THE CLOSING: If possible, try to negotiate with the lender to salvage your good credit.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist. |
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