I have an approval letter with no language addressing deficiency or right to pursue or not. This is in California - a non-deficiency state.
The only thing the letter says is "This letter will serve as acceptance of a short payoff involving the following property:....." And it says "No additional statements will be issued."
The negotiator has said there may or may not be a 1099C sent to the borrower.
I'm of course going to tell the borrower he MUST speak to an attorney to find out whether or not he is at risk of the lender pursuing him later for a deficiency. But I'm curious what SSSS's think - since there is no language saying they do have the right to pursue - isn't that sufficient? Or not?
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I would have him speak with a tax expert rather than an attorney.
The California Association of Realtors has some info on this subject :
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.
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. :)
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
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.
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