Legal Question in Real Estate Law in California

Re: forclosure and shortsale

Your question is very open ended. There are many answers. The short version is that your credit will be affected in both scenarios. However, the short sale would be preferable to foreclosure.

CA is a deed of trust jurisdiction meaning there are no judicial foreclosure proceedings. There is also an anti-deficiency statute in place meaning that the homeowner is not personally liable for any deficiency between the original loan amount and the final auction price. However, selling the deed of trust for default is relatively quicker than states that have a judicial foreclosure system.

If you are behind on your mortgage or simply are serious about getting out, then list your home for short sale right away.

Find a realtor that has experience in these types of transactions, preferably with your lender. Once you have a buyer lined up and a dialogue established with your lender, have an attorney review the final documents.

Best of Luck!

Re: forclosure and shortsale

I have read the prior answer to your question by another attorney and believe that portions of it are misleading. California has TWO methods of foreclosure, trustee's sale OR judicial foreclosure. A lender who chooses to foreclose via a trustee's sale proceeding cannot seek a deficiency judgment, but the same lender may be able to use judicial foreclosure instead, if he wants to get a deficiency. If the loan is not purchase money but is a refinance, it is possible to seek a deficiency judgment by filing suit in court. Whether the lender chooses to do this is open to question, but it is a remedy available to the lender. Either way, your credit will be affected for a minimum of 7 years.

Re: forclosure and shortsale

A short sale requires a willing lender. If the lender forecloses by trustee sale, it waives any right to a deficiency judgment. If the lender pursues a judicial foreclosure, you may be liable for a deficiency judgment, assuming you have no valid defenses.