If You own San Diego Real Estate and owe more than what You believe the home is worth, read this very carefully… The purpose of Senate Bill 458 (SB 458) is very clear; Stop 2nd Mortgage holders from going after California Homeowners who have gone through a Short Sale of their Primary Residence. In summary, SB 458 ensures that any Lender which agrees to a Short Sale in California, must accept the agreed upon payment within the Short Sale transaction as “Payment in Full” of the outstanding balance on all loans. SB 458 contains an “Urgency Clause”, which makes the Bill effective immediately upon signing (7/15/2011).
There are several gaping holes in SB 458 that could be very costly to those who own real estate in San Diego. SB 458 was intended to help Homeowners who want to short sale their homes and avoid foreclosure. In short, SB 458 does not allow the Bank to sue you for any shortage on the mortgage you owe, but only applies if the Bank agrees to let you do a Short Sale. For some, SB 458 will be a God-send, but others won’t be so lucky…
SB 458 Will Help You if:
– Your 2nd/3rd Mortgage is “Non-Recourse”.
(“Recourse” meaning that the Loan-Holder has the ability to pursue You for any unpaid balance, even after a Short Sale or Foreclosure on the property attached to the Loan(s). A Non-Recourse mortgage is a mortgage that You obtained when You bought the property. If You refinance, that loan becomes a “Recourse” loan.)
SB 458 will be a problem for You if:
– Your 2nd/3rd Mortgage has “Recourse”.
Put Yourself in the shoes of a 2nd/3rd Mortgage holder… If the loan You own is Non-Recourse, there is no way to collect money after the Short Sale or Foreclosure on the property. Meaning, You will not be able to sue the Homeowner for the rest of the money they owe You. SO, it’s financially beneficial if You can get ANY money out of the Short Sale Negotiation. You will get nothing if the home goes to Foreclosure. So, if You are a Homeowner with a Non-Recourse 2nd/3rd mortgage, SB 458 is a great thing for You!
However, the opposite is True if Your 2nd/3rd mortgage has Recourse. In that case, the Mortgage Holder would be in a position where a Foreclosure could be significantly more beneficial to them. You see, SB 458 only protects the Homeowner if the Short Sale actually takes place. The 2nd/3rd Mortgage Holder has the power to Veto the Short Sale very easily! I believe they WILL do so in every instance where there is a financial benefit for such action. When the Mortgage Holder has Recourse on Your 2nd/3rd mortgage, then they CAN sue You for the full amount You owe in the event of a Foreclosure, so which outcome do You expect they will be voting for?
You should know that most Realtors in San Diego have absolutely NO Idea how all this works…
Chapter 7 Bankruptcy is about to become even MORE popular in this tough economy… When You file for Chapter 7, Your personal liability is eliminated from ALL mortgages associated with ANY property You own. This way, no matter what, You would have the 2nd/3rd Mortgage Holders working toward a Short Sale resolution since it would be the only way for them to get paid! No matter what, always talk to a San Diego Bankruptcy Lawyer before doing a Short Sale or letting Your Home go to Foreclosure.