Anti-Deficiency Law is Changing

The anti-deficiency law is changing. These changes are incoporated in SB 1271 and effective September 30, 2009. The National Board of Realtors (NAR) is making an effort to repeal this law.
The change was intended to limit the type of borrowers that will qualify for anti-deficiency treatment. A borrower may be subject to a deficiency action or sued on its note following a foreclosure or short sale under the following circumstances.

1. If the property is more than 21/2 acres.
2. If the property is not a single-family or two-family dwelling.
3. If the borrower or trustor has not lived in the property for at least six months.
4. In some cases, if the money loaned was not used to purchase the home (e.g. cash out refinance or HELOC).

Under the new law, a property that has not been used by the trustor as a dwelling for at least 6 consecutive months will no longer qualify for anti-deficiency treatment. The previous law states that – as long as the property was used as a dwelling by someone else. Therefore, many investment properties will be disqualified from getting the anti-deficiency treatment.

You may also read the terms of your lender’s promissory note and other documents. Every situation is different and there are exemptions to the general guidelines. Consult a tax accountant or real estate attorney to know your rights and consequences of a short sale or foreclosure.