One of the most common searches on our site is conducted by visitors seeking information about California Short Sale Laws.
As a convenience we’ve set forth some of the statutes below.Please read the disclaimer before proceeding.
Disclaimer: Summaries of these statutes are offered for general informational purposes only. This information is not an exhaustive exposition of California Law relative to Short Sales. It’s presented to give the visitor a general idea as to the tenor of California Law on the subject. DO NOT rely upon this information for any purpose without seeking advice from an attorney licensed to practice in the State of California.

The CA Homeowner Bill of Rights
The CA Homeowner Bill of Rights is comprised
of the following Senate & Assembly Bills:
AB 278 – SB 900 – AB 2314 – SB 1472 AB 2610
SB 1473 – AB 1950 – AB 1763 – SB 1474

This Law has numerous components. A summary is set forth below:
  • The Attorney General’s office is granted the ability to convene statewide grand juries to investigate and indict perpetrators of financial crimes involving victims in multiple counties.
  • The statute of limitations for mortgage-related crimes has been extended from one to three years, giving the Department of Justice a broader timeframe for
    investigating and prosecuting more complex mortgage fraud crimes.
  • Local governments are given more tools to combat blight resulting from higher percentages of foreclosed homes.
  • Protection for tenants in foreclosed homes is now the law.
  • There are protections for struggling homeowners that restrict dual-track foreclosures and forces lenders to provide homeowners a single point of contact to discuss their loan. (Dual tracking occurs when the lender agrees to work with a homeowner on a loan modification or some other alternative while also going forth with foreclosure proceedings). The dual tracking provision not only prohibits ongoing foreclosure activity while a loan modification is being processed, but also prohibits dual tracking if a short sale is on the table, more specifically:

“A mortgagee, beneficiary, or authorized agent shall record a rescission of a notice of default or cancel a pending trustee’s sale, if applicable, upon the borrower executing a permanent foreclosure prevention alternative. In the case of a short sale, the rescission or cancellation of the pending trustee’s sale shall occur when the short sale has been approved by all parties and proof of funds or financing has been provided to the mortgagee, beneficiary, or authorized agent.” (CA Civil Code Section 2924.11 – emphasis added).

It seems the legislature is saying that: 1) If the lender(s) on all liens have approved a short sale; and, 2) Proof of escrow funds can be provided, then the short sale lender is required to rescind or cancel the pending Trustee’s Sale or Notice of Default. But here’s the rub: If the buyer walks, the lender is under no obligation to forestall the foreclosure proceedings for the seller to secure another buyer. If the buyer walks, the short sale process probably ends and foreclosure ensues. Click here to view the full text of the various statutes that comprise the Homeowner’s Bill of Rights. (This is a large document and takes a few moments to load).
Senate Bill 931 – Prohibits Deficiency Judgments

This statute gives peace of mind to homeowners selling their
homes via short sale! It protects homeowners by prohibiting the first mortgage holder from pursuing a deficiency judgment after a short sale has been approved. Under this legislation, when a lender issues a written approval the lender must accept the proceeds of the short sale as full payment, discharge the remaining balance, and waive all rights to pursue the homeowner for any deficiency in the future. Click here to view the entire text of Senate Bill 931.
Senate Bill 458 РReleases Homeowner Potential For Future Liability On Subordinate Liens 
This statute protects California homeowners who sell their homes via short sale and have subordinate loans such as Home Equity Lines Of Credit (HELOCs) or fixed second mortgages. If the lender issues a written short sale approval on a subordinate mortgage, the lender must agree to accept the proceeds from the short sale as payment in full. In July of 2011 this bill did for subordinate lien creditors what SB 931 did for first lien creditors in January of 2011. This means that California homeowners are released from deficiency judgments (the threat of future collection attempts) on first liens and subordinate liens. Click here to view the entire text of Senate Bill 458
The Mortgage Forgiveness Debt Relief Act Of 2007

The Mortgage Forgiveness Debt Relief Allows homeowners to exclude forgiven mortgage debt from gross income. This can save struggling homeowners tens of thousands of dollars.Assume you owe $300,000 on your mortgage and you short sale your home for $200,000 with your lender forgiving the $100,000 difference. Prior to passage of the Mortgage Forgiveness Debt Relief Act of 2007, that $100,000 cancellation of debt was considered a taxable event by the IRS. An upside down homeowner can now sell their home without facing dire tax consequences (with some exceptions). Click here to view the entire text of the Mortgage Forgiveness Debt Relief Act of 2007 and its extension, The American Tax Payer Relief Act of 2012.
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