Revisiting the Anti-Deficiency Statute

April 2nd, 2012 at 6:53 pm

Over the past few months, there have been questions regarding the revised anti-deficiency statute, specifically who and what it covers. There has been an anti-deficiency statute on the books since the 1930s in the form of California Code of Civil Procedure Section 580. This law provided that no deficiency judgment could be entered against a homeowner on purchase money mortgages. In other words, if the borrower used the money to purchase the residence, the lender was limited to regaining possession of the property and could not go after the borrower for any deficiency. The statute only addressed foreclosure situations and thus, the borrower was not protected in the event of a short sale.

Effective as of July 15, 2011 Section 580(e) was added to the statute which expanded the anti-deficiency rules to include the sale of the property for less than the remaining amount of the indebtedness outstanding at the time of sale upon written consent of the lender, in other words, in the case of a short sale.

This law also made it clear that the lender cannot ask for additional funds to be paid by the borrower to secure the consent to sell nor can the lender require the borrower to sign an agreement to repay the deficiency in exchange for consent to sell. If the lender requests such payment or repayment document, it is considered fraud by the lender and the borrower can seek damages against the lender.
Initially, we saw a lot of lenders trying to condition consent in violation of the statute, but more recently, the lenders appear to be complying with the law.

As always, let us know if you have any questions.

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