Legal Question in Real Estate Law in California

Re: Short Sale

A deficiency judgment is only not allowed when the seller retains a deed of trust.

Re: Short Sale

Yes, debt relief is considered a form of income and would be taxable. Before you agree to a short sale, you need to consider the impact this will have on your taxes.

You cannot accomplish a short sale without negotiating with the lender. If the proceeds from the buyer are not sufficient to pay off the loan, the lender is under no obligation to voluntarily release the lien. The lender's incentive for taking the short sale is that they can get most of their money back without having to go through the foreclosure process that takes a minimum of 4 months.

You should also be aware that debt forgiveness obtained in bankruptcy is not considered income. Contact a local bankruptcy and/or real estate attorney to discuss your options.

Re: Short Sale

You seem to be doing this backwards; it may be that your lender will not agree to a "short sale", so you should start with that query. Also, the type of loan, whether or not it is purchase money and whether or not there were any misrepresentations of your income, etc., in the loan process, also must be evaluated. You need to take all documents to a real estate attorney for any useful advice.

Re: Short Sale

Forgiven debt is taxable as income.

The rules regarding whether a lender secured by residential real roperty can sue for a deficiency after default and foreclosure are moderately complex, but I can give you a few of the rules that will cover most situations:

(1) A lender can obtain a default judgment without regard to the type of loan or the foreclosure procedure if the loan was obtained by fraud (such as through use of an application containing serious fraudulent misrepresentations) or (2)where the collateral has been damaged by the borrower (e.g. by logging off the timber or burning the barn or dumping toxic waste).

(3) Absent (1) or (2), there is no right to a default judgment where the foreclosure is done by trustee's sale.

(4) Absent (1) or (2), there is no right to a default judgment on a purchase-money loan. I believe there is some recent case law saying that a refinancing of a purchase-money loan does not destroy its character as a purchase-money loan so long as the borrower doesn't take out any cash.

These rules apply to borrowers and not guarantors.