Legislative Counsel's digest

SB 458, Corbett. Mortgages: deficiency judgments.
Existing law prohibits a deficiency judgment under a note secured
by a first deed of trust or first mortgage for a dwelling of not more
than 4 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. Existing law provides that
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.
Existing law specifies that those provisions would 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 3rd party for fraud or waste if the
trustor or mortgagor commits either fraud with respect to the sale
of, or waste with respect to, the real property that secures that
deed of trust or mortgage. Existing law makes these provisions
inapplicable if the trustor or mortgagor is a corporation or
political subdivision of the state.
This bill would expand those provisions to prohibit a deficiency
judgment upon a note secured solely by a deed of trust or mortgage
for a dwelling of not more than 4 units in any case in which the
trustor or mortgagor sells the dwelling for a sale price less than
the remaining amount of the indebtedness outstanding at the time of
sale, in accordance with the written consent of the holder of the
deed of trust or mortgage if the title has been voluntarily
transferred to a buyer by grant deed or by other document that has
been recorded and the proceeds of the sale are tendered as agreed.
The bill would also provide that, in other circumstances, when the
note is not secured solely by a deed of trust or mortgage for a
dwelling of not more than 4 units, no judgment shall be rendered for
any deficiency upon a note secured by a deed of trust or mortgage for
a dwelling of not more than 4 units, if the trustor or mortgagor
sells the dwelling for a sale price less than the remaining amount of
the indebtedness, in accordance with the written consent of the
holder of the deed of trust or mortgage. The bill would provide,
following the sale, in accordance with the written consent, the
voluntary transfer of title to a buyer, as specified, and the tender
of the sale proceeds, the rights, remedies, and obligations of any
holder, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee,
or guarantor of the note, deed of trust, or mortgage, and with
respect to any other property that secures the note, shall be treated
and determined as if the dwelling had been sold through foreclosure
under a power of sale, as specified. The bill would prohibit the
holder of a note from requiring the trustor, mortgagor, or maker of
the note to pay any additional compensation, aside from the proceeds
of the sale, in exchange for the written consent to the sale. The
bill would provide that these provisions are inapplicable if the
trustor or mortgagor is a corporation, limited liability company,
limited partnership, or political subdivision of the state. The
provisions would also be inapplicable to any deed of trust, mortgage,
or other lien given to secure the payment of bonds or other evidence
of indebtedness authorized, or permitted to be issued, by the
Commissioner of Corporations, or that is made by a public utility
subject to the Public Utilities Act. The bill would provide that any
purported waiver of these provisions shall be void and against public
policy.
This bill would declare that it is to take effect immediately as
an urgency statute.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 580e of the Code of Civil Procedure is amended
to read:
580e. (a) (1) No deficiency shall be owed or collected, and no
deficiency judgment shall be requested or rendered for any deficiency
upon a note secured solely by a deed of trust or mortgage for a
dwelling of not more than four units, in any case in which the
trustor or mortgagor sells the dwelling for a sale price less than
the remaining amount of the indebtedness outstanding at the time of
sale, in accordance with the written consent of the holder of the
deed of trust or mortgage, provided that both of the following have
occurred:
(A) Title has been voluntarily transferred to a buyer by grant
deed or by other document of conveyance that has been recorded in the
county where all or part of the real property is located.
(B) The proceeds of the sale have been tendered to the mortgagee,
beneficiary, or the agent of the mortgagee or beneficiary, in
accordance with the parties' agreement.
(2) In circumstances not described in paragraph (1), when a note
is not secured solely by a deed of trust or mortgage for a dwelling
of not more than four units, no judgment shall be rendered for any
deficiency upon a note secured by a deed of trust or mortgage for a
dwelling of not more than four units, if the trustor or mortgagor
sells the dwelling for a sale price less than the remaining amount of
the indebtedness outstanding at the time of sale, in accordance with
the written consent of the holder of the deed of trust or mortgage.
Following the sale, in accordance with the holder's written consent,
the voluntary transfer of title to a buyer by grant deed or by other
document of conveyance recorded in the county where all or part of
the real property is located, and the tender to the mortgagee,
beneficiary, or the agent of the mortgagee or beneficiary of the sale
proceeds, as agreed, the rights, remedies, and obligations of any
holder, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee,
or guarantor of the note, deed of trust, or mortgage, and with
respect to any other property that secures the note, shall be treated
and determined as if the dwelling had been sold through foreclosure
under a power of sale contained in the deed of trust or mortgage for
a price equal to the sale proceeds received by the holder, in the
manner contemplated by Section 580d.
(b) A holder of a note shall not require the trustor, mortgagor,
or maker of the note to pay any additional compensation, aside from
the proceeds of the sale, in exchange for the written consent to the
sale.
(c) 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 deed of trust or mortgage, this section shall not limit
the ability of the holder of the deed of trust or mortgage to seek
damages and use existing rights and remedies against the trustor or
mortgagor or any third party for fraud or waste.
(d) (1) This section shall not apply if the trustor or mortgagor
is a corporation, limited liability company, limited partnership, or
political subdivision of the state.
(2) This section shall not apply to any deed of trust, mortgage,
or other lien given to secure the payment of bonds or other evidence
of indebtedness authorized, or permitted to be issued, by the
Commissioner of Corporations, or that is made by a public utility
subject to the Public Utilities Act (Part 1 (commencing with Section
201) of Division 1 of the Public Utilities Code).
(e) Any purported waiver of subdivision (a) or (b) shall be void
and against public policy.
SEC. 2. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
In order to mitigate the impact of the ongoing foreclosure crisis
and to encourage the approval of short sales as an alternative to
foreclosure, it is necessary that this act take effect immediately.