New California Statute Restricts Mortgage Deficiency Judgments

On September 30, the California legislature approved a statute prohibiting deficiency judgments in cases where the holders of first deed of trust or first mortgages consent to a sale of a dwelling for less than the remaining amount of indebtedness due at the time of the sale. Based on the holder’s written consent, the holders cannot collect any deficiencies and must fully discharge the remaining amount of debt. The statute applies to first mortgages or first deeds of trust for dwellings that are 4 units or less. The mortgagee can seek compensation, if the mortgagor commits fraud in the sale of the property or causes damage to the property.