Legal Question in Real Estate Law in California

It is hard to know where to begin explaining what a bad idea this is. Why in the world would you agree to sell your house for less than you owe on it without a short sale agreement anyway? How will it affect you at tax time? Well you will have to somehow find out exactly how much was paid to pay off the second and declare that as part of the purchase price, otherwise you would be committing capital gains tax fraud. Why doesn't the buyer want to pay of the second with cash through the escrow and as part of the purchase price. That's a big red flag. What if they DON'T pay it off. That leaves you liable for the debt. And in the end it screws them on capital gains taxes when THEY go to sell, if they pay-off of the second separate from the purchase. That's because they would be unable to claim the pay off of the second as part of their basis for calculating their gain. And then to top it all off, the VA is going to want to see the second paid off in the escrow or they won't fund their loan. If the second isn't paid off in the escrow, then it jumps to first ahead of the VA and the VA won't fund the loan if it is supposed to be in first and is actually going to be in second. This whole thing sounds like a big mess for you and the buyer.