Senate Majority Leader Corbett came through for many homeowners in a tight pinch. Those that were worried about completing a short sale while still having a second mortgage that could come after them years later, commonly to what everyone refers to as seeking a deficiency, was not a settling thought for many sellers who found themselves with high payments and upside down property values. For many that had been forgotten by the loop-hole left by SB 931 only protecting those homeowners for their first mortgage SB 458 has now closed that loop-hole on second mortgages as well. As many homeowners during that last boom found lenders pushing them towards taking on more than what they could chew there is a hope that this will be a strike back to protect them from any further insult and injury. The bill made into the hands of the governor where it was quickly signed and rushed into law on July 15th. The anti-deficiency law to protect homeowners from their Jr. Liens (second mortgages or other) from coming after them will ride on the heels of SB 931 in this case amending civil code 580E’s current written form.
Many will rejoice but few with experience will really know what this means. When ever there is an action there is a reaction and in this business it is not always equal. Unintended consequences of this new law is that now second mortgages have become very sensitive to the whole nature of settling their debts. For example where as before a second mortgage could settle with their clients outside of the closing such as a cash settlement or a promissory note that no longer is an option. Therefore there are going to be, according to current standards and practices, a lot of stalled short sales where first mortgage liens will not be allowing amounts to go to second mortgages which they are requiring in order to release their lien. We see that in the months to come there is going to be a good bit of pushing and shoving between lien holders till a new game plan is set in place. For right now it seems that there is going to be a 6% or 6K rule mimicking that of HAFA’s though many clients may not be participating in the HAFA process at all. One of such banks is Bank of America who has seemingly applied the rule to just about all their loans.
Certain states such as Texas have enjoyed the luxury of anti-deficiency law but many will attest to the difficulties found in such states where the first and second mortgage cannot come to an agreement.
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