Legal Question in Real Estate Law in California

If your present loan is a "purchase money" loan (rather than a refinancing), the lender cannot obtain a judgment against you based on the failure of the foreclosure sale to generate enough proceeds to pay off the mortgage balance plus costs of foreclosure. So, there is no risk of future garnishments or other collection attempts due to a deficiency judgment, as they are called.

There is a slight to very slight risk that an irritated and aggresssive lender might sue you for somthing else. For example, borrowers assume a contractual duty to take reasonable care of the collateral. If you failed, for example, to repair a leaking pipe and allowed thousands of dollars of damage to occur, you could be sued for what is called "waste" (of the lender's collateral). Some borrowers are sued for loan-application fraud if they have grossly overstated their finances or other material facts. Such suits are rare, but do happen.

If you do a short sale, review the deal terms carefully to make sure you are not trading a relatively safe situation where you are immune from deficiency judgment for one where, somehow, you are assuming a new liability. A short sale should finally and permanently extinguish your relationship with the lender and the property.

Finally, there is some risk that your decision will turn out to be untimely. What if both rents and house prices rise 40% over the next four or five years? I'm not saying they will or won't, but some economists think the USA may be in for some serious inflation. You might ask your landlord for a lease with purchase option at a fixed price and exercisable at any time as long as you haven't elected to move out.