Pursuant to Senate Bill 580, Section 580e of the California Civil Procedure Code was amended to prohibit a lender or other party holding a deed of trust or mortgage secured by residential real property (one- to four-family units) from taking a deficiency judgment following a “short sale” (i.e., a sale for a price less than the remaining amount of the debt secured by the property) to which the lender has agreed in writing. Under such circumstances, the lender’s receipt of the sale proceeds fully discharges the remaining debt. This protection does not extend to a borrower who commits fraud with respect to the sale, or waste with respect to the property. This legislation also prohibits the holder of a note from requiring the borrower to pay any additional compensation in exchange for the holder’s written consent to the sale.

These protections do not apply to corporate or political subdivision borrowers. They also are inapplicable to any deed of trust, mortgage, or other lien given to secure the payment of bonds or other debt authorized by the Commissioner of Corporations, or that is made by a public utility subject to the Public Utilities Act. This legislation expressly provides that any purported waiver of these provisions is void, as being against public policy.

Enacted July 2011 (effective January 2012). Link to bill: http://leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.pdf