Monday Market Myth: Lien Holders Remove Deficiency

Myth: A lender in the first or second position in an accepted short sale can sue the borrower for debt of property, after closing.

False: In California, the Senate Bill 458 just passed in July which makes it illegal for the first and second line holders on a property to receive any money after an approved short sale.  The lien holders will have to accept the payoff on the HUD Statement and many will not be allowed to sue.  The law provides a sense of security for those waiting for a short sale, but every mortgage institution and loan is different.  Please talk to your CPA and real estate attorney to see how you are particularly affected.

The issuse that arise:

  • The first lien holder has to give more money to the second in order for the second lien holder to accept
  • Neither lender has to accept the short sale
  • The home can still go into foreclosure

To find more information on the law, click here.

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