top of page

Short Sale Protections

  • Writer: Mitchell Sussman
    Mitchell Sussman
  • Oct 13, 2021
  • 2 min read

Updated: Jan 13, 2022

California Legislature approved Senate Bill 931 (SB 931) amending Code of Civil Procedure CCP §580e to provide for anti-deficiency protection to certain short sales. Short sale sellers have been traditionally faced with the possibility that their lender would seek a deficiency i.e., the difference between the sales price set forth in the short sale and the existing loan balance. While in many situations the short sale paperwork provided by the bank provided for a waiver of the deficiency, most short contained a warning to the seller that the bank was retaining its option to recover the deficiency by an action in court. With the passage of SB 931, which went into effect on January 1, 2011, a short sale borrower that comes within the language of the statute no longer needs to worry that he or she will be sued by the lender for the difference between the loan balance and the sales price received by the lender. It should be noted, however, that this short sale anti – deficiency protection is afforded only to a loan secured by a first trust deed. Furthermore, it applies only to a single family residence which the statute defines as “ a dwelling of not more than four units.” There are certain limitations to this anti – deficiency consumer protection statute. The first and most important limitation is that it does not apply to junior liens. Thus, the holder of a note secured by a second trust deed would still retain the right to sue for the non – payment of the note. Another limitation is that it applies only to human borrowers not corporations. Interesting, however, there is no requirement that the human borrower be an owner occupant. Finally, this statute does not apply when the borrower commits either fraud. While this statute, on its face, may be a boon to short sales in that it insulates the homeowner from deficiencies in connection with a sale for less than the balance of the loan, there is a potential that this recent enactment will have a chilling effect on short sales because note holders, who can no longer sue for a deficiency, will likely require higher payoffs to offset the potential recovery that they formerly had when deficiencies were possible.



© 2025 by Sussman & Associates

 

No attorney-client relationship. The Law Office of Sussman & Associates maintains this website exclusively for informational purposes. Viewing this site, using information from it, or communicating with The Law Office of Sussman & Associates through this site by email does not create an attorney-client relationship between you and the The Law Office of Sussman & Associates.

Nonreliance. Online readers should not act or decline to act, based on content from this site, without first consulting an attorney or other appropriate professional. Because the law changes constantly, this website's content may not indicate the current state of the law. Nothing on this site predicts or guarantees future results.

bottom of page