Legal Question in Real Estate Law in California

I want to answer your questions in reverse of the order in which you asked them. First, remember that a short-sale is a voluntary agreement by the lender to accept less than they are owed to allow you to sell the home. As such, there are no rules or strict guidelines they must follow in processing a short sale. To a degree, it depends largely upon a number of factors, including how good your negotiator is in making a deal with the lender.

First, a lender can require that you sign an unsecured promissory note, or, if you buy a new home pre-short-sale, a note secured by your new home as a condition of allowing the short-sale to proceed. They will perform a title search and if you own property, they will almost certainly insist that you give it up as collateral for the balance of the loan not repaid by your short-sale. The banks generally take the position that they have a right to be repaid the entire amount of the loan regardless of what you sell the property for.

Can the bank deny a short-sale because you went out and bought a new property right before the short-sale? Absolutely, though as stated above, there are no real rules or guidelines, so its impossible to say what they might do. The bank is doing this voluntarily, so they can pretty much ask for whatever they want. And, if they decide that buying a new house then asking them to take a short-sale is bad-faith, they will deny your request.

Can you do it legally? You can, but I would strongly suggest that you need representation in the purchase of any property, particularly one with "seller financing." Many times sellers who are granting 100% seller financing are actually selling it subject to a mortgage they owe, and I've seen literally hundreds of these deals go bad in the years I have practiced law. A little expense on the front end could save everything you invest in this new house in the long run.

The final question I have is why do a short-sale at all? If you want to go buy the new house, you need to examine whether or not you have any deficiency exposure if the current house goes to foreclosure. If it does not, then you may be better served to just let it go, as you would then have no future financial liability for the home. On that last point, you really have to hire someone to review the current financing, and other pertinent information before making that decision, as there are a lot of factors that go into whether or not you will be financially liable after a foreclosure.

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.Short answers Yes, no and no.

1 Yes there is nothing legally to prevent you from buying a new home just because you just did a short sale. Whether a bank or someone wants to lend to you is a different story.

2 No what you are doing has nothing to do with your short sale request.

3 No if you do a short sale you are making an agreement with the bank to take less than what is owed. Make sure that is clear in your agreement. Also our state's anti deficiency laws will protect you if there is a balance left between the amount owed on the first and the sale price of the house. It does not apply to a second and the house must have been your residence.

Good Luck and hope that helps.