If you sold your house in a short sale escrow, the second lender must have agreed to the short sale terms, because the buyer and the buyer's lender will have required that all liens be paid off at the close of escrow. Code Civil Procedure 580e prohibits lenders whose loans were secured solely by a deed of trust on 1-4 dwelling units, from pursuing a deficiency against the borrower, if that lender voluntarily agreed to the terms of the short sale. You need to gather your sale contract and escrow papers, and the collection notices, and meet with a real estate attorney to sort this out.
Richard A. Rodgers, Esq.
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362
As stated in the AVVO.COM Terms and Conditions of Use, this answer is not intended as legal advice, and no attorney-client relationship or privilige is created by this response.
The applicable statute of statute of limitations which should apply would be the statute of limitations for breach of a written contract, which normally requires an action to collect the debt to commence within four years of the alleged breach of contract. Which would mean that they have to commence legal action within four years of the first payment you missed. You should consult with an attorney to determine whether the debt is collectible, options in dealing with the debt, and whether you may have claims against the broker or agent representing you.
It's not clear how you were able to close escrow on the short sale if there was a second deed of trust pending.
Most likely, you still owe on the second loan.
Attorney Rodgers mentions SB931. Senate Bill 931 adds Section 580e to the California Code of Civil Procedure. SB 931 provides that a seller's first trust deed lender cannot obtain a deficiency judgment against the seller after a short sale. By providing written consent to a short sale, the first trust deed lender becomes obligated to accept the sales proceeds as full payment and discharge of the remaining amount owed on the loan. SB 931 applies to first trust deeds secured by one-to-four residential units, but does not limit the lender from seeking damages for fraud or waste by the borrower. However, I believe that law did not take effect until September 2010.
The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author (who is only admitted to practice law in the State of California). For specific advice about your particular situation, consult your own attorney.
You may be legally responsible for the debt, but your broker/agent should have negotiated with the lender to protect you against a deficiency judgment. The sale should never have been approved without a waiver by all lenders of the deficiency judgment upon approval of the short sale. In addition, if you broker negligently represented to you that there would be no deficiency judgement you may have a good claim against that broker/agent. You would have a strong claim for breach of fiduciary duty and the duty of care and could likely sue for the damages up to the amount of commissions received. If there is enough to show that you would not have had a deficiency judgment from this lender but for the actions of this broker/agent, whatever is owed in the deficiency may be recoverable as well. If you have any further questions I provide free consultations. Eric Townsend (855) DELT-Law www.deltlaw.com