Recent Changes To Anti-Deficiency Statutes

In July 2013, Governor Jerry Brown signed into law Senate Bill 426, which amends and broadens anti-deficiency protections of California Code Of Civil Procedure § 580b and 580d. In its existing form, CCP 580b prohibits a deficiency judgment following any nonjudicial foreclosure under a deed of trust securing either (1) a purchase money loan, (2) the refinancing of a purchase money loan with no advances of principal, or (3) a seller-financed loan. While prohibiting entry of a deficiency judgment, CCP 580b in its current form does not prohibit a lender from asserting that a deficiency is due or from attempting to collect the deficiency from the borrower using alternate collection methods such as credit reporting or collection agencies. Effective on January 1, 2014, Senate Bill 426 amends CCP 580b to expressly state that no deficiency shall be owed or collected following a nonjudicial forcelosure involving a purchase money loan. Senate Bill 426 leaves unchanged the existing prohibition against deficiency judgments. Senate Bill 426 also leaves unchanged a lender’s right to seek satisfaction of any deficiency from guarantors, sureties or other collateral.

In addition to amending the anti-deficiency protections available to a borrower following nonjudicial foreclosure involving a purchase money loan, Senate Bill 426 similarly amends CCP 580d effective January 1, 2014 to expressly state that following a nonjudicial foreclosure, no deficiency shall be owed or collected on any note secured by a deed of trust. In its current form, CCP 580e, addressing deficiencies following a short sale, already contains the prohibition against claiming and collecting a deficiency and is not affected by Senate Bill 426.