Legal Question in Real Estate Law in California

First, California is not in the strictest sense "non-recourse," but a very high percentage of loans and foreclosures either never had a right of recourse to the borrower, or the recourse is waived by the lender's election to foreclose by trustee's sale.

Next, the non-recourse (antideficiency) laws apply to foreclosure situations. They do NOT necessarily apply to contracts entered into to permit or facilitate a short sale. Any homeowner/borrower who enters into a short sale contract without negotiating carefully and reading every word of anything they sign may be setting themselves up for a personal liability for the deficiency.

Next, be careful about the term "default judgment." A default judgment usually is one where the plaintiff wins because the defendant fails to answer the summons and complaint within the allotted time, usually 30 days. It is not the usual term for a judgment a lender might get after going to court to foreclose and not being fully paid from the foreclosure proceeds ....... that is a deficiency judgment.

Lenders are more likely to go to court for judicial foreclosure, where they can sometimes get a deficiency judgment (whereas with a trustee sale they cannot), if they think the borrower is a rich guy with assets they can attack to collect a judgment, or if they think the borrower is a crook (falsified loan application, failed to maintain property, etc.). Attempts to go after ordinary folks for deficiencies seem to be quite uncommon these days. However, keep in mind what I said about the differences between foreclosures and short sales. In the latter, lender strategies and the likelihood of future attempts to go after deficiencies depend on the terms of the deal more than on California's anti-deficiency laws.

As to "writing off" state taxes you pay, I assume you are asking whether state income taxes paid are a deduction from gross income for calculating federal tax liability. This is often true, but you need to get broader-scope tax advice relative to 1099-C tax liability in your specific case, because there are exemptions. That said, you are more likely to be exempt from the federal tax on forgiven debt than to be exempt from California's, since the state lagislature has not seen fit to renew the exemption which expired 12/31/2009. You can get a tax package such as TurboTax and run your federal taxes with and without the California hit deducted to get an estimate of the tax reduction.