Legal Question in Real Estate Law in California

Re: Foreclosures & law suits

You need to read up on what happens in a foreclosure or short sale. Go to your local library and look at the Nolo Press books.

In a foreclosure, the lender foreclosing is basically agreeing that in return for him selling your property your debt to him is eliminated. That lender can not sue you for any part of the loan amount that is uncollected [anti-deficiency rule]. Any mortgage holder junior to the senior foreclosing one[later in time] has his security for the loan disappears but can still go after you for an unsecured debt. Whether they will is unclear because everyone would assume you have nothing to collect.

In a short sale, you and the lender agree on a minimum sales price that the property will be offered for and what will happen to any excess funds if the property should sell for more than the outstanding balance and cost of sale. The lender has complete discretion as to whether they will agree to a short sale or not. It does help your credit rating because a foreclosure has not occurred, but the IRS can treat the amount of short fall as being income to you.

I am not a bankruptcy expert, but you should see if you can work something out with all of your creditors before filing for bankruptcy.

I do not understand your last question. If you are treated as getting the difference in sale price and the loan as income that has no effect on the lenders.

Re: Foreclosures & law suits

The 1099 is notice to you and the IRS that the difference between the sale price and the amount due has been written off by the lender as a loss. This loss becomes your income. This principle applies to all debts where the creditor receives less than the full amount of the loan plus interest from the debtor.