Legal Question in Real Estate Law in California

I am not LawGuru's top expert on the hidden dangers of short-sale buying, but I can say that I've heard plenty of sad stories from borrower-sellers about foreclosures that occurred weeks or days before their short sales went through. Banks apparently have one department that works with borrowers on short sales, and another (maybe in another city and state) that holds the foreclosure calendar and pulls the sale trigger. So, a proposed short sale is subject to last-minute cancellation due to an unexpected foreclosure sale. I understand legislation is or was coming down the pike to prevent this, but I don't know if it is now in effect, nor whether it will affect all loans.

Also, remember that the lending bank needs to be a participant in a short sale; otherwise, it will retain an interest in the property - a lien for whatever portion of the loan was "short" at the time of sale, So, the short-sale documentation needs to include the lender's full release of its claims - a reconveyance - without any latent right to collect the deficit from either seller or buyer in the future.

I'd say that if you are a relative novice in short-sale buying, you should consider having a local attorney with recent short-sale experience review the documentation just before the closing, to assure you that the lender, by executing the documentation, will fully and finally reliquish its right, title and interest in the property. Finally, check a current title report for the possibility that the seller has other liens on title, e.g. a second mortgage.