NEW LAW ON SHORTSALE DEFICIENCY - CCP Section 580e

On July 15, 2011, the new law basically prohibits mortgage lender from collecting deficiency or obtaining a deficiency judgment for a short sale involving a loan secured by a one (1) to four (4) unit residential unit property.  The new law also generally prohibits a lender from requiring a borrower to pay any additional compensation, aside from proceeds from the sale, in exchange for a short sale approval.  This law applies to first and second deeds of trusts and other junior trust deeds.  

The exact text of the law is as follows:

(a) No judgment shall be rendered for any deficiency under a
note secured by a first deed of trust or first mortgage for a
dwelling of not more than four 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.
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.
   (b) 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 first deed of trust or first mortgage, this section shall
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 third party for fraud or
waste.
   (c) This section shall not apply if the trustor or mortgagor is a
corporation or political subdivision of the state.