Legal Question in Real Estate Law in California

No. Recently passed legislation prohibits banks from approving short sales and then going after the balance. This makes it harder to get approval of short sales, and they may require a payment from you in addition to the proceeds of the sale, but once approved and done, they can only write off the loss.

If the loan on your condo was a purchase money loan (you used it to buy the condo), then the lender's only foreclosure option is to sell the condo and take what it can get. If, however, the loan was a refinance, then the lender can choose between foreclosing non-judicially or judicially. With the former, the lender just gets the condo. With the latter, the lender can get the condo and a judgment for the amount that it does not get, at the foreclosure sale (aka "deficiency")

So - bottom line - make sure that the short sale agreement with the lender includes a waiver of any deficiency. I have seen lenders allow a short sale and, then, go after the borrower's other assets to collect the deficiency.

I agree with Mr. McCormick. If a lender agrees to a short sale, then the short sale is there only remedy. "No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage." (Code Civ. Proc., sect. 580e.)

Note, however, that the section mentions the holder of the first deed of trust or first mortgage. You use the term "banks" which is plural, so the answer may be different depending on what junior lienholders agree to.

Mr. McCormick is right.....Mr. Salzman's answer would have been right before the new legislation.

I cited Section 580e in my answer, but Lawguru took it out. I don't know why.