Put to rest the nightmare of a lender pursuing a deficiency judgment against you for mortgage debt forgiven in a California short sale.
It’s not going to happen!
Mortgage lenders are prohibited from obtaining a deficiency judgment following the short sale of a residential property with no more than four units. Junior lien holders are also prohibited from pursuing a deficiency judgment if they have agreed to the short sale (per Cal. Code Civ. Proc. § 580e).
In effect, lenders who agree to a short sale can no longer:
Require the borrower to sign a promissory note as a condition of the short sale
Require the borrower to contribute funds at the close of escrow as a condition of the short sale.
I can’t tell you how many distressed homeowners in San Diego fear doing a short sale, fearing that banks can come after them later for the mortgage debt that was erased. Back in the 1990’s, it was common practice for lenders to do this and many were saddled with debt for years after completing thier short sale.
California has passed laws prohibiting this practice. If a lender agrees to a short sale and it closes, the borrower is free to move on–unencumbered with old mortgage debt.