Recently enacted Senate Bill 306 does not require lenders to review short sale requests from sellers and their agents within 21 days. The new California law, which addresses certain escrow procedures, has been mischaracterized by some practitioners as landmark legislation calling for a 21-day turnaround for short sale approvals.
The new law inserts a short payoff amount request into the existing payoff demand law which generally requires a lender to respond to a request for a payoff demand statement within 21 days from when it is requested, typically by escrow. The new law essentially requires, after a short sale has already been approved, for the lender to respond to a request for a short-pay demand statement within 21 days. The lender’s response to escrow can be a short-pay demand statement or even, depending on the circumstances, a written statement electing not to proceed with the proposed transaction.
Another provision of SB 306 may also cause confusion. In practice, a lender may approve a short sale subject to its review of a closing statement prepared by escrow, but the lender does not review that closing statement promptly. Under the new law, if a lender fails to approve the closing statement within four days, the closing statement shall be deemed approved, but only if it is “not clearly contrary to the terms of the short-pay agreement or the short-pay demand statement provided to the escrowholder.” The new law does not bind a lender to a short payoff amount in an offer that the lender has not approved.
Senate Bill 306 contains other technical changes in real estate related laws, such as, but not limited to, the following:
Expanding the existing requirement for a lender to contact certain borrowers to explore options for avoiding foreclosure at least 30 days before filing a notice of default, to include not only owner-occupied residences, but also owner-occupied residential property with two-to-four dwelling units.
Extending the existing requirement for a lender to record a notice of sale from 14 to 20 days before a trustee’s sale. This provision does not change existing law requiring a lender to wait at least 20 days after mailing a notice of sale before conducting a trustee’s sale.
This new law comes into effect on January 1, 2010. The full text of Senate Bill 306 is available at http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0301-0350/sb_306_bill_20090806_chaptered.pdf.
From REALEGAL and the CALIFORNIA ASSOCIATION OF REALTORS®