Legal Question in Wills and Trusts in California

Read The Friendly Contract. Does the contract say you get to change your mind?

Also, this is not really a probate, trusts, wills and estates question. You should re-post it in the proper category.

Without knowing what your written contract states, in general a real estate agent is entitled to a commission if he/she brings you an offer that meets all of your terms but you are the one who backs out. Your should have found out what the tax consequences were before listing the property; your agent should probably have told you so you might be able to use that failure on his/her part to argue for a reduced commission. On the other hand, if you do not go through with the short sale and the lender forecloses, they can report the difference between the loan balance and the fair market value as income to you, so you need to re-consider if you should back out of the short sale.

Unless for some insane reason the real estate agent did not use the standard Calif. Assn. of Realtors listing form, you are absolutely liable for commission for backing out of the sale. Now if you really want to kick yourself, you should also know that if the house was your principal residence, there would have been no tax to you on the 1099-c, due to the Mortgage Foregiveness Debt Relief Act of 2007, unless the 1099 was over $1 million for single or married filing separtely, or $2 million for married filing jointly.