ONTARIO, Calif. (7/25/11)--A new California law will protect homeowners who are pursuing short sales by prohibiting second lien holders from pursuing deficiency judgments. Gov. Jerry Brown signed Senate Bill 485 into law on July 18. SB 458 extends the protections of SB 931 to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. A short sale is a transaction in which the homeowner owes more than the property is worth. To sell the home, all lien holders must approve the sale because the amount owed will be short of what is owed by the borrower. Under the previous law, a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance, but the rule did not apply to second or “junior” lien holders. The measure also will encourage more short sales in California, according to Melissa Ameluxen, the California Credit Union League’s director of state government affairs. Additional borrower protection could encourage some owners to proceed with short sales who may have just moved into foreclosure for fear of liability to second lien holders, Ameluxen said. “Only lenders that actually agree to the short sale will be affected, and sellers that cannot complete an acceptable sale may still explore additional options, such as foreclosure or even bankruptcy,” she added.