BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 458|
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                                 THIRD READING


          Bill No:  SB 458
          Author:   Corbett (D), et al.
          Amended:  5/16/11
          Vote:     27 - Urgency

           
           SENATE JUDICIARY COMMITTEE  :  4-0, 4/12/11
          AYES:  Evans, Harman, Corbett, Leno
          NO VOTE RECORDED:  Blakeslee


           SUBJECT  :    Mortgages:  deficiency judgments

           SOURCE  :     California Association of Realtors
                      California Bankers Association


           DIGEST  :    Existing law prohibits a lender from receiving a 
          judgment for a deficiency after a short sale on a first 
          mortgage or deed of trust, as specified. This bill expands 
          that anti-deficiency protection for all mortgages or deeds 
          of trust, provided that the holder of the mortgage or deed 
          of trust consents to the short sale.  This bill also 
          restates the above prohibition to clarify that the 
          provisions do not impact multiple collateral loans.

           Senate Floor Amendments  of 5/16/11 provide that the 
          homeowner may not be required to pay any additional 
          compensation, aside from the proceeds of the sale, in 
          exchange for the holder's written consent to the short 
          sale, add clarifying language and address concerns that 
          this bill's current language may permit debt collectors to 
          seek collection when a deficiency judgment is barred.
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           ANALYSIS  :    Existing law provides for procedures by which 
          a money judgment (a "deficiency judgment") can be sought 
          for the balance due on an obligation for the payment of 
          which a deed of trust or mortgage was given as security.  A 
          court may render judgment for not more than the amount by 
          which the entire amount of indebtedness due at the time of 
          sale exceeded the fair market value of the real property or 
          interest therein sold at the time of sale, with interest 
          from the date of sale, as specified.  (Code of Civil 
          Procedure ÝCCP] Section 580a)

          Existing law prohibits a deficiency judgment after the sale 
          of real property under a deed of trust or mortgage on a 
          dwelling for not more than four families.  That provision 
          applies to loans that were used to pay all or a part of the 
          purchase price of the dwelling that was occupied by the 
          purchaser.  (CCP Section 580b)

          Existing law prohibits a deficiency judgment on a note 
          secured by a deed of trust or mortgage in any case in which 
          the property has been sold by the mortgagee or trustee 
          (lender) under a power of sale contained in the mortgage or 
          deed of trust. (CCP Section 580d)

          Existing law prohibits a deficiency judgment on a note 
          secured by a first deed of trust or first mortgage on a 
          dwelling of not more than four units where the dwelling is 
          sold for less than the remaining amount of indebtedness due 
          at the time of sale with the written consent of the hold of 
          the first deed of trust or mortgage.  Written consent of 
          the holder obligates that holder to accept sale proceeds as 
          full payment and to fully discharge the remaining amount of 
          indebtedness.  (CCP Section 580e(a))

          Existing law provides that if the mortgagee commits fraud 
          with respect to the sale, or waste with respect to the real 
          property, the above provision shall not limit the ability 
          of the holder of the first deed of trust or mortgage to 
          seek damages and use existing rights and remedies.  (CCP 
          Section 580e(b))  

          Existing law provides that the above protections do not 
          apply if the trustor or mortgagor is a corporation or 







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          political subdivision of the state.  (CCP Section 580e(c))

          This bill revises the above provisions by striking 
          reference to "first," thereby applying the protections to 
          all of the mortgages or deeds of trust secured by the 
          property.

          This bill expands those provisions to prohibit a deficiency 
          judgment upon a note secured solely by a deed of trust or 
          mortgage for a dwelling of not more than four units in any 
          case in which the trustor or mortgagor sells the dwelling 
          for a sale price less than the remaining amount of the 
          indebtedness outstanding at the time of sale, in accordance 
          with the written consent of the holder of the deed of trust 
          or mortgage if the title has been voluntarily transferred 
          to a buyer by grant deed or by other document that has been 
          recorded and the proceeds of the sale are tendered as 
          agreed.  This bill also provides that, in other 
          circumstances, when the note is not secured solely by a 
          deed of trust or mortgage for a dwelling of not more than 
          four units, no judgment shall be rendered for any 
          deficiency upon a note secured by a deed of trust or 
          mortgage for a dwelling of not more than four units, if the 
          trustor or mortgagor sells the dwelling for a sale price 
          less than the remaining amount of the indebtedness, in 
          accordance with the written consent of the holder of the 
          deed of trust or mortgage.  This bill provides, following 
          the  sale, in accordance with the written consent, the 
          voluntary transfer of title to a buyer, as specified, and 
          the tender of the sale proceeds, the rights, remedies, and 
          obligations of any holder, beneficiary, mortgagee, trustor, 
          mortgagor, obligor, obligee, or guarantor of the note, deed 
          of trust, or mortgage, and with respect to any other 
          property that secures the note, shall be treated and 
          determined as if the dwelling had been sold through 
          foreclosure under a power of sale, as specified.  This bill 
          prohibits the holder of a note from requiring the trustor, 
          mortgagor, or maker of the note to pay any additional 
          compensation, aside from the proceeds of the sale, in 
          exchange for the written consent to the sale.

          This bill additionally states that the section shall not 
          apply if the trustor or mortgagor is a limited liability 
          company, limited partnership.  The section would also not 







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          apply to any deed of trust, mortgage, or other lien given 
          to secure the payment of bonds or other evidence of 
          indebtedness authorized or permitted to be issued by the 
          Commissioner of Corporations, or which is made by a public 
          utility subject to the Public Utilities Act.

          This bill provides that any waiver of the anti-deficiency 
          provisions in the bill by a covered person shall be void 
          and against public policy.

           Related legislation  .  SB 412 (Vargas) is substantially 
          similar to SB 458.  The bill is currently in the Senate 
          Judiciary Committee.

           Prior legislation  .  SB 931 (Ducheny), Chapter 701, Statutes 
          of 2010, passed the Senate Floor (35-0) on August 19, 2010.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   
          Local:  No

           SUPPORT  :   (Verified  5/17/11)

          California Association of Realtors (co-source)
          California Bankers Association (co-source)
          California Association Realtors
          California Credit Union League
          California Independent Bankers
          California Mortgage Banker Associations


           ARGUMENTS IN SUPPORT  :    According to the author:

            "As the economic crisis continues to impact Californians, 
            short sales offer an opportunity for a homeowner to avoid 
            foreclosure.  However, current law only affords 
            'anti-deficiency' protection for the first note or first 
            deed of trust in the event of a short sale.  Current law 
            does not extend this anti-deficiency protection for 
            junior notes when a short sale occurs (i.e. second 
            mortgages)?

            "SB 458 (Corbett) builds upon the protections laid out in 
            Section 580(e) of the Code of Civil Procedure by 
            protecting homeowners from deficiency judgments in all 







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            loans on a home, not simply the first note."

          The California Association of Realtors, co-sponsor, further 
          notes that "SB 458 will bring together the desired 
          clarification of last session's bill Ýregarding multiple 
          collateral loans] which is currently found in SB 412, 
          Vargas, and adds additional protections against post-short 
          sale deficiency liability to junior note holders (seconds) 
          when those lenders approve a short sale.  It is important 
          to note that the short sale process remains voluntary on 
          every participant's part - only lenders that actually agree 
          to the sale will be affected, and sellers that cannot put 
          together an acceptable sale may still go to foreclosure or 
          even bankruptcy."


          RJG:kc  5/17/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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