Finally, some clarity now for sellers of underwater property in California. In the past, there had been some uncertainty whether lenders could pursue short sale sellers for a deficiency after approving a short sale.
The reason was that the California Code of Civil Procedure Section 580d discussed what happens after a Trustee's sale (foreclosure sale), but it was not clear that a short sale was the same as the Trustee's sale (although arguably under Section 726, the "One Action Rule", approval of the short sale might be construed as an "action" on the lender's part.)
Now, Senate Bill 931 has been signed by the Governor and it is summed up as follows: "This bill requires the holder of a first mortgage or deed of trust that is secured by residential real property to accept, as full payment, the proceeds of a short sale to which it agrees in writing, and obligates that note holder to fully discharge the remaining amount of the borrower's indebtedness on the deed of trust or mortgage following the sale."
What does that mean? It means that if you are a home owner in Santa Clara county (or anywhere in California), and you owe more than the house is worth, and the lender agrees to accept less as part of a short sale--you do not owe the lender anything further.
Prior to this law, lenders had a practice of approving short sales, releasing their deeds of trust but selling their promissory notes to collection agencies.