Below is a summary of recent changes to California State Law by the California Association of Realtors that affects banks ability to come after borrowers for defeciency judgements.

SB 931
(eff. Jan. 1, 2011)
Discharge of balance of loan indebtedness after a short sale for residential 1-4 real property by holder of a first deed of trust

This new law prohibits a lender holding a first deed of trust (purchase money or refinance) for a dwelling of 1-4 units to demand a deficiency judgment (unpaid balance due on the loan) from the trustor or mortgagor (owner) who sells the dwelling for less than the remaining amount of the indebtedness due at the time of the short sale to which the lender has consented in writing.

However, if the owner commits either fraud with respect to the short sale, or waste with respect to the secured real property, then the lender may seek damages and use existing rights and remedies against the owner or any third party for fraud or waste.

Note that this law doesn't apply if the trustor or mortgagor is a corporation or political sudivision of the state.

Adds Section 580e to the Code of Civil Procedure.