If I Have A Short Sale – Can The Lender Later Come After Me?

SB 931 which became Effective January 1, 2011, mimics the deficiency judgment ruling of foreclosures to apply to short sales.

This means in California, first trust deed mortgage holders, cannot go after those individuals who sold their homes on a short sale for the difference between the amount owed the lender and the amount the property sold for.

Just as with those individuals who lost their homes to foreclosure due to a hardship, some people decided to go the short sale route and avoid foreclosure in an effort to preserve their credit. Prior to the enactment of this bill lenders had the right to go after these individuals with a deficiency judgment.

Quite frankly, other than a bigger hit to someone’s credit whose home went into foreclosure, there was little incentive to short sell the home if the homeowner faced the possibility of having to pay the difference between the sales price and loan amount.

At this time there is no such protection if you have a second or third mortgage loan. Even though the lenders agree to sell short they still can seek a judgment against the borrower.

One caveat of SB931 – if there is any indication the borrower committed fraud short selling their property, the primary lender can go after the homeowner.

About Linda Urbick Linda

has written 247 articles on this blog.


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