Senate Bill 458

On July 18 Gov. Jerry Brown signed Senate Bill 458 into law. This new California law will protect homeowners who are pursuing short sales by prohibiting second lien holders from pursuing deficiency judgments.

SB 458 effectively extends the anti-deficiency protections provided by SB 931SB to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

A short sale is a transaction in which the homeowner owes more than the property is worth ( under water ). To sell the home, all lien holders must approve the sale because the amount owed will be short of what is owed by the borrower.

Under the previous law, a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance, but the rule did not apply to second or “junior” lien holders. Sb 485 ties up this loop-hole, so a 2nd lien holder can no longer pursue deficiency judgments.

Both of these Senate Bills amended California Civil Code 580.

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