Additional Short Sale Protection

SB 458

On July 15, 2011, California Governor Jerry Brown signed into law SB 458, an amendment to California Code of Civil Procedure Section 580e. The original Section 580e provided that once the holder of a First Deed of Trust or mortgage on a dwelling of 1 to 4 units gave its approval to a short sale, receipt of the sale proceeds by that lien holder constituted payment of the debt, and no deficiency could be sought. However, the law applied to holders of First deeds of trust or mortgages only.

SB 458 amends Section 580e to provide that junior lien holders who grant their approval to a short sale and receive sales proceeds are prohibited from pursuing a deficiency as well. The section also provides that a waiver of the section’s provisions is unenforceable as contrary to public policy.

The section does not apply if the trustor or mortgagor is a corporation, limited liability company, limited partnership, or political subdivision of the state.

The amendment became effective upon signing by the Governor.