Legal Question in Real Estate Law in California

Technically, yes that is the law, but only if the lender writes off the balance. If the lender is taking a deduction for it, as you can imagine, the tax man wants someone to take it as income. Some lenders, however, are refusing to write off the balance and consider it converted to a personal debt. If the lender does that, then there is no income. Also there is a temporary moratorium on collecting the tax on written off mortgage debt in place for the IRS. I believe it goes through 2011. Last I checked California was still collecting on written off real estate debt, but there was a bill in the legislature to conform to the federal position. I do not know if that has passed.