BILL ANALYSIS Ó
SB 458
Page 1
Date of Hearing: June 20, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 458 (Corbett) - As Amended: May 16, 2011
SENATE VOTE : 39-0
SUBJECT : Mortgages: deficiency judgments.
SUMMARY : Expands anti-deficiency protection for all
residential mortgages or deeds of trust, provided that the
holder of the mortgage or deed of trust consents to the short
sale. Specifically, this bill :
1)Clarifies that anti-deficiency protections do not apply to
commercial property loans.
2)Specifies that the holder of the note shall not require the
trustor, mortgagor, or maker of the note to pay additional
compensation, aside from sale proceeds, in exchange for
consent to the sale.
EXISTING LAW
1)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 Civ. Proc. Sec. 580a.)
2)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. (Code Civ.
Proc. Sec. 580b.)
3)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
SB 458
Page 2
sale contained in the mortgage or deed of trust. (Code of Civ.
Proc. Sec. 580d.)
4)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 holder 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. (Code Civ.
Proc. Sec. 580e(a).)
5)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. (Code Civ. Proc. Sec. 580e(b).)
6)Specifies that the above protections do not apply if the
trustor or mortgagor is a corporation or political subdivision
of the state. (Code Civ. Proc. Sec. 580e(c).)
FISCAL EFFECT : None
COMMENTS :
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 loans on a home,
not simply the first note."
This bill builds on SB 931 (Ducheny), Chapter 701, Statutes of
2010, which first provided anti-deficiency protection for short
SB 458
Page 3
sales. Code of Civil Procedure, Section 580e (created by SB
931) was intended to afford relief to borrowers when their
mortgage was secured by simple parcels of real property
containing one-to-four family unit homes. An unintended
consequence of this law, is that it could be construed to hinder
the recovery of some collateral used in a commercial loan, or it
could provide a disincentive for the lender and borrower in a
commercial loan from working out an agreement short of
foreclosure. The reason for this complication is that many
commercial loans require the borrower to pledge multiple forms
of collateral, which in many cases would be residential
property.
In addition to clarifying existing protections, this bill
expands those protections to second liens on residential
property. AB 458 would protect borrowers in non-judicial
foreclosure from deficiency judgments resulting from a short
sale so long as the property meets the residential property
requirement and that the lender agrees in writing to the short
sale. Short sales can be complex transactions requiring
numerous parties to agree to receive less than the full amount
owed on the property. In many cases, borrowers have been able
to get a short sale agreement with their first and second
lenders only to find the second lender requesting the leftover
amount due on the loan. This bill would clear up this issue by
ensuring that once the homeowner has signed a short sale
agreement with a second lender, then they are free from further
efforts to seek the deficient amount.
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.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors
California Bankers Association
California Independent Bankers
SB 458
Page 4
California Mortgage Association
California Mortgage Bankers Association
California Rural Legal Assistance Foundation
United Trustees Association
Western Center on Law & Poverty
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081