Legal Question in Real Estate Law in California

Senate Bill 931 was signed by former Governor Schwarzenegger on September 30, 2010. It went into effect on January 1, 2011, not January 7, 2011.

That bill created Code of Civil Procedure section 580e, a new antideficiency rule.

"(a) No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the

trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first

mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.

(b) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.

(c) This section shall not apply if the trustor or mortgagor is a corporation or political subdivision of the state." (Code of Civ. Proc., sect. 580e.)

Laws enacted by the Legislature are prospective, and not retroactive, unless otherwise expressly provided by the Legislature. "It is settled therefore that no statute is to be given retroactive effect unless the Legislature has expressly so declared and that this rule is not limited by a requirement that a statute be liberally construed to effect its objects and promote justice." (DiGenova v. State Board of Education (1962) 57 Cal.2d 167, 174 relying in part on Civil code section 3.) The rule is different if the statute does not affect substantive rights, and is only procedural.

The Legislature did not make section 580e retroactive, and it is not only procedural, but rather affects substantive rights of a lender.

Short sales done prior to CCP 580e are "all over the map," depending upon the negotiating strengths and skills of the parties, the aggressiveness of the lender, and numerous other factors. If you did a pre-1/1/11 short sale, you'll have to review your deal documents to see where you stand. However, even if you are potentially liable for a deficiency, this does not mean your former lender is likely to be coming after you. It may, or it may sell your note to a bill collector, or it may forget you entirely.