Short sale FAQ

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Anyone considering a short sale in California should get all the facts before coming to a decision. Here are some important tips and considerations for those thinking about a short sale. Please remember this article is not a substitute for legal and tax advice.

1. What is the California Foreclosure law?
Here is a good quick summary of the state foreclosure law.

2. Does a lender have to agree to a short sale?
No. It is truly up to the lender.

3. In a short sale, is the cancellation of debt income always taxable?
As of April 2010, tax on “phantom debt” is not taxable in California which is similar to Home Foreclosure and Debt Cancellation the Federal Law. You must obtain a 1099C from your lender. Seek the advice of your tax adviser before you begin the process.

4. Can a lender collect money from me after a Short Sale?
On a purchase money loan in California lender cannot collect a deficiency judgment for the balance of the loan. Be careful you understand a HELOC is not a purchase money loan.
California real estate law is complex; be sure to seek the advice of a real estate attorney.

The California Code of Civil Procedure 580b protects owner-occupied homeowners who have not refinanced their loans. Review the statue of limitations and make sure your lawyer reviews your final short sale agreement from the lender. Be aware if you do agree to a loan modification your loan will no longer be a purchase money loan.

Before you agree to a short sale, loan modification or any other work out, read your contract and any other documents from your lender. Review the Anti-Deficiency Protection. Look out for key words like: “Full satisfaction” or “We forgive the remainder” and “Not personally liable for deficiency.”

5. What is the impact of foreclosure or a short sale vs. declaring bankruptcy on you credit?
Declaring bankruptcy can have a greater negative impact on your credit score than a foreclosure or short sale. “While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO score,” says the credit advice site

6. What if I am unable to reach my mortgage company?
Call the Homeowners HOPE Hotline at 1-888-995-HOPE (4673).
Experienced counselors can help you consider the best plan of action for your financial situation. This is service is available for homeowners only. (Realtors cannot call on behalf of their clients.)