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Permalink Reply by Vicki Lloyd on June 1, 2011 at 5:23am

I would have him speak with a tax expert rather than an attorney.

The California Association of Realtors has some info on this subject :

Short Sale Deficiencies

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Permalink Reply by Rob Regan on June 1, 2011 at 9:48am

Vicki & Harry - that's a testament to how great shortsalesuperstars is - that I didn't think to go to CAR first.  Thank you, that document is exactly what I was looking for.  And agreed - he needs to speak with a tax expert.  Thanks for that tip as well!!!

 

My take, given my seller's situation (first lien, purchase money) is that he should be ok.  Hopefully that's what he believes after speaking with an expert.

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Permalink Reply by Tara Polley on June 3, 2011 at 8:47am

Hi Rob,

Because it's a non-deficiency state, the lender could only pursue a deficiency through a judicial foreclosure, which is rare. If it is "purchase money", they will not be able to pursue a deficiency through short sale. If a 1099C is issued, and it is a primary residence, the borrower may qualify for the "Mortgage Debt Relief Act of 2007" when filing their taxes, which would protect them from paying taxes on the forgiven debt.

 

Hope that helps. :)

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Permalink Reply by Trina Gonzales on June 3, 2011 at 9:21am

California law does protect your client but the letter shouldn't be so broad and "template" like that. I have a great Real estate attorney that you may want to speak to and have your seller speak to:  call attorney John Mansour @ 909-941-1611.  He's very knowledgeable and advises our office and our clients.

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Permalink Reply by Kimberley Kelly on June 5, 2011 at 3:33am

Always send them to their CPA or tax attorney of course.  However, as Tara says, The Debt Forgiveness Act should give them the protection they need...through 12/2012.  But..I do not like those vague approval letters.  I have not had a Lender yet REFUSE to put in some verbage..just make it very clear and easy for them to do it.  Those letters are not state specific and are meant to be vague..

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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on June 5, 2011 at 5:24am

Rob -

 

Google SB931  In CA, if the lender approves short sale there can be no deficiency on the 1st.  The seller may get a 1099c but their tax preparer / CPA will need to handle it for them.

 

Best of luck,

Thom Colby

Broker / Negotiator

Newport Beach CA

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Permalink Reply by ElizabethWeintraub00697006LyonRE on June 5, 2011 at 6:15am

Lots of people make the mistake of thinking that because there may no language addressing a release of liability that it doesn't matter. It DOES matter. Even a purchase money loan is not automatically exempt after a short sale -- that coverage extends to foreclosures, NOT short sales. Short Sales are different. Although Section 580e of the Civil Code offers protection, it hasn't yet been challenged, says some lawyers. They don't rely solely on it. If I were a seller, I would want a release of liability. Period. You have nothing to lose by asking for it. If you don't want to, have a lawyer ask for it.

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Permalink Reply by Karen Roberts on June 5, 2011 at 12:46pm

Attached is the antideficiency ruling in CA.  The IRS 1099c is the IRS and is totally different from the Cal. Civil Code regarding antideficiency.

 

BILL NUMBER: SB 931 CHAPTERED BILL TEXT

CHAPTER  701
FILED WITH SECRETARY OF STATE  SEPTEMBER 30, 2010
APPROVED BY GOVERNOR  SEPTEMBER 30, 2010
PASSED THE SENATE  AUGUST 19, 2010
PASSED THE ASSEMBLY  AUGUST 16, 2010
AMENDED IN ASSEMBLY  JUNE 1, 2010
AMENDED IN SENATE  MARCH 25, 2010
AMENDED IN SENATE  MARCH 15, 2010

INTRODUCED BY   Senator Ducheny

                        FEBRUARY 2, 2010

   An act to add Section 580e to the Code of Civil Procedure,
relating to mortgages.


LEGISLATIVE COUNSEL'S DIGEST


   SB 931, Ducheny. Mortgages: deficiency judgments.
   Existing law authorizes an action for a deficiency judgment for
the balance due upon an obligation for the payment of which a deed of
trust or mortgage with power of sale upon real property or any
interest therein was given as security, as specified. Existing law
prohibits a deficiency judgment in any case in which the real
property or an estate for years therein has been sold by the
mortgagee or trustee under power of sale contained in the mortgage or
deed of trust.
   This bill would prohibit a deficiency judgment under a note
secured by a first deed of trust or first mortgage for a dwelling of
not more than 4 units in any case in which the trustor or mortgagor
sells the dwelling for less than the remaining amount of the
indebtedness due at the time of sale with the written consent of the
holder of the first deed of trust or first mortgage. The bill would
provide that written consent of the holder of the first deed of trust
or first mortgage to that sale shall obligate that holder to accept
the sale proceeds as full payment and to fully discharge the
remaining amount of the indebtedness on the first deed of trust or
first mortgage. The bill would specify that those provisions would
not limit the ability of the holder of the first deed of trust or
first mortgage to seek damages and use existing rights and remedies
against the trustor or mortgagor or any 3rd party for fraud or waste
if the trustor or mortgagor commits either fraud with respect to the
sale of, or waste with respect to, the real property that secures
that deed of trust or mortgage. The bill would make these provisions
inapplicable if the trustor or mortgagor is a corporation or
political subdivision of the state.



THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 580e is added to the Code of Civil Procedure,
to read:
   580e.  (a) No judgment shall be rendered for any deficiency under
a note secured by a first deed of trust or first mortgage for a
dwelling of not more than four units, in any case in which the
trustor or mortgagor sells the dwelling for less than the remaining
amount of the indebtedness due at the time of sale with the written
consent of the holder of the first deed of trust or first mortgage.
Written consent of the holder of the first deed of trust or first
mortgage to that sale shall obligate that holder to accept the sale
proceeds as full payment and to fully discharge the remaining amount
of the indebtedness on the first deed of trust or first mortgage.
   (b) If the trustor or mortgagor commits either fraud with respect
to the sale of, or waste with respect to, the real property that
secures the first deed of trust or first mortgage, this section shall
not limit the ability of the holder of the first deed of trust or
first mortgage to seek damages and use existing rights and remedies
against the trustor or mortgagor or any third party for fraud or
waste.
   (c) This section shall not apply if the trustor or mortgagor is a
corporation or political subdivision of the state.

580d.  No judgment shall be rendered for any deficiency upon a note
secured by a deed of trust or mortgage upon real property or an
estate for years therein hereafter executed in any case in which the
real property or estate for years therein has been sold by the
mortgagee or trustee under power of sale contained in the mortgage or
deed of trust.
   This section does not apply to any deed of trust, mortgage or
other lien given to secure the payment of bonds or other evidences of
indebtedness authorized or permitted to be issued by the
Commissioner of Corporations, or which is made by a public utility
subject to the Public Utilities Act (Part 1 (commencing with Section
201) of Division 1 of the Public Utilities Code).

 

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