After Governor Jerry Brown signed SB 458 into law, the hopefulness turned into helplessness for many homeowners pursuing short sale as a foreclosure alternative.
On July 15, 2011 California Governor Jerry Brown may have thought he was doing a good thing for the world of short sales. That is the day he signed Senate Bill 458 into law to extend protection of the already in place SB 931. The new bill states that junior lien holders cannot pursue a deficiency after a short sale. It also holds that a lender cannot request a contribution or promissory note in a short sale in exchange for an approval.
On the surface, this seems like a great idea. But the problem with great ideas is that one must first possess the ability of foresight, which is to look into the future and see what potential problems may be caused by the great idea. Unfortunately for California homeowners and real estate agents, Governor Brown was a little short-sighted when it came to SB 458.
You heard it first on the JohnHart website on July 18 that this bill would possibly be detrimental to the already overburdened short sale process. We had sincerely hoped we were wrong, but it wasn’t long before we saw the consequences of Governor Brown’s actions, even as many were still reporting on the greatness of the bill. On August 15 –only one month after the bill passed– we let you know about the negative side of SB 458 we had already experienced firsthand.
As an example of the damage that SB 458 is causing, we had a short sale with Bank of America where Greentree held the second and Countrywide (now BofA) is the investor. Prior to SB 458, they agreed to release in full the debt and lien for $5152.57 on an $88,332.83 balance. This means that Greentree was not planning on going after the homeowner after the short sale for any deficiency. They were already abiding by the spirit of SB 458 long before its inception. After SB 458, they changed their mind on the approval. They now require $26,499.85 on that same $88,332.83 balance. Their previous approval had the exact same effect as SB 458; however, now that SB 458 is in writing they want something different. On other short sales with Greentree they have stated they will not release for anything less than 20% because of SB 458, even though this negotiator is playing hardball for 30%. He even told us that the sellers have unnecessary expenses on their bank statements so they have money. This hint that the sellers should pay toward the short sale is a direct violation of SB 458, but it appears that part of the bill is truly not being enforced.
Again, just to reiterate, Greentree has specifically told us on multiple short sales that SB 458 is the cause for their policy changes. And Greentree is not the only junior lien holder who has adopted this stance on SB 458. The bill, as it stands today, is driving homeowners into foreclosure and overall hurting California.
So where is Governor Brown in this backlash? Why isn’t he protecting the homeowners as he pledged to do with the passing of SB 458?
The great thing about mistakes like SB 458 is that they can be fixed. We just need Governor Brown to take a look at what is truly taking place in the world of short sales so that he can actively help homeowners short sell their homes and avoid foreclosure. Until then, homeowners can only hope their junior lien holder isn’t one of those that refuse to help out.
Contributor, designer & admin for JohnHart Gazette.
