Legal Question in Real Estate Law in California

I would need to do some research on this matter. I can't give you a 100% correct answer, but, my initial feeling is no, but I am not a 100%.

It makes no difference if they are with the same bank or different banks. Because they are investment properties, the bank can go after you for any deficiency after a short sale as long as they reserve that right in the short sale approval. They would have to obtain a judgment against you before they could go after any assets, however, unless the properties were cross-collateralized. The story is different, however, if they foreclose. The "one form of action" rule, which works effectively like an anti-deficiency law, does not depend on the property being your residence. If the bank conducts a non-judicial foreclosure (and over 99% of bank foreclosures in California are non-judicial trustees' sales) they are then prohibited from taking any action to recover any deficiency. Accordingly, a short sale, while better for your credit in the short run, is probably the worst option for you. I cannot say that for sure without knowing all the details of your finances, but it sounds like allowing the house to go into foreclosure is the proper course. The other thing you might want to look at, however, is a Chapter 13 bankruptcy. Chapter 13 may allow you to restructure your debts to make both properties affordable with the rents they earn, and it may be the least damaging to your credit since you will be performing on both loans. You would need to talk to a bankruptcy specialist, however, to determine if that really is an option.

No, I disagree with Mr. McCormick. The California Legislature has added Code of Civil Procedure section 580e, which prohibits a deficiency judgment by a lender after agreeing to a short sale on a residential dwelling encumbered by a first deed of trust or mortgage. "No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage." (Code Civ. Proc., sect. 580e, subd. (a).)