In California if you sell a short sale property is the seller resposible for the deficiency amount?

In California if you sell a short sale property is the seller resposible for the deficiency amount?
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May 10 2011 - Mission Valley West
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Answers (11)

It depends on your interpretation of the law.
NO DEFICIENCY IN CALIFORNIA ON SHORT SALES ???
http://www.car.org/newsstand/newsreleases/sb458
check the law to be sure you are covered - California sb458



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October 18 2011
Profile picture for shasta_steve
More smoke and mirrors. 

Ok so if the second agrees to a short sale they have to accept it as payment in full.  This is really easy to get around as they will just not agree to the short sale and take their chances in foreclosure.  The first is going to bear the cost of that one anyway.  If they have a recourse second then they can just sit back until it forecloses and then try and collect.  Much to do about nothing but sounds good on those real estate agent ads. 
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July 30 2011
Posting by Cherri is very helpful and correct.  It only applies to short sales that close escrow after July 15, 2011.  Here is an article on my blog that also contains a link to download a copy of the Senate Bill 458:

http://wp.me/p1tNzl-2O

Marc Guzman
Spre, Inc.
CA Broker[edited by Zillow moderator to remove website.  Please refer to Zillow's Good Neighbor Policy. for posting guidance]
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July 30 2011

UPDATE - (July 15) - The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.

"The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference," said C.A.R. President Beth L. Peerce. "SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders - those in first position and in junior positions - will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property."

SB 458 contains an urgency clause making it effective upon signing.

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July 28 2011
Accourding to SB931 in law 1/1/2011:  if the lender is the first deed of trust, they cannot pursue the homeowner for a deficiency.  Also, The Mortgage Foregiveness Deb Relief Act of 2/20/2007 states for mortgages discharged from 2007 to 2012, there are no taxes owed on forgiven debt.  2nd mortgages are another matter and takes a skilled Realtor/negotiator to release the deficiency.  Make sure your Realtor knows the short sales laws  and as always, check with your tax professional to make sure these rules apply to you. 
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June 24 2011
With a short sale I would highly advise that you read the fine print of the bank approval letter very carefully and have your Attorney and CPA take a look as well.
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June 20 2011
It depends on how the short sale is structured. be sure your agent has lots of experience CLOSING short sales.
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May 10 2011
Hi Aaron,

It depends on how good your agent is at negotiating with the lender.  I am currently in the middle of a short sale.  The seller refinanced her loan many times and is not going to be responsible for the deficiency amount.

Unfortunately there are no guarantees.  Just make sure you hire an agent who has a successful track record for closing short sales.  My office has done over 70 of them and not one seller had to come out of pocket.

Best of luck.

Staci
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May 10 2011
Profile picture for wetdawgs
In CA it depends.   There is a difference between a primary purchase loan and refinanced loans and HELOC.   The primary purchase loan (at the moment) is non-recourse.  The refinanced/HELOC are recourse (i.e. the seller is responsible for the deficiency).

Here's a link to the CA civil code on the subject.  (good luck!)


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May 10 2011
Profile picture for John Fagan
Aaron,

You want to make sure you have an approval letter from the short sale lender(s) that states they are releasing the homeowner from any further obligation and will not pursue a deficiency.

The question that people seem to be confused about is whether that "forgiven debt" needs to be reported as income.  I'm not an attorney or tax advisor, but the IRS Form 4681 explains this.
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May 10 2011
Dear Aaron,

Although every state* may be different, in general, each short sale deficiency is a negotiated point in the contracts. Some lenders try to hold the Sellers responsible.  The Sellers' agent should have the training to assist the Seller with that negotiation. The goal is different - obviously - for lender and seller - one wants hope in the future to get the missing funds paid and the other wants to walk away from the situation and not pay again in the future.

Have a happy day -
Lynn


*disclosure - not from CA -
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May 10 2011
 
Related Questions
In California if you sell a short sale property is the seller resposible for the deficiency amount?
Profile picture for Harold Sharpe
Latest answer by Harold Sharpe
October 18 2011 | 11 answers
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