Legal Question in Real Estate Law in California

Short sales are voluntary transactions and the laws limiting the rights of lenders to deficiency judgments in connection with a foreclosure generally don't apply. The terms of the short-sale agreement or agreements will indicate whether the sale extinguishes the lender's right to a balance due or not. Also, SBA 504 loans customarily involve personal guarantees by the borrower(s) and in most cases the lenders will have figured out how to write guarantee provisions with teeth. I would advise a review by a lawyer of any short-sale agreement regarding commercial property for fairness to the borrower and any guarantors, including tax consequences.

Never never ever do a short sale on a commercial property unless the lender agrees to release and cancel any outstanding debt. Otherwise all you are doing is getting more money for the lender for nothing for you. Otherwise make them foreclose so they are barred from collecting a deficiency. The ONLY exception is if the lender actually sues to foreclose, rather than conducting a trustees sale AND you have the assets to satisfy the remainder of the debt. Then and ONLY then is it in the property owner's interests to go to the trouble of a short sale, as part of a settlment of the foreclosure lawsuit.