BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 458| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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. CONTINUED SB 458 Page 2 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 SB 458 Page 3 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 SB 458 Page 4 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 SB 458 Page 5 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 **** END ****