First, before we start, a bank cannot, by itself, force a short sale. The bank can foreclose on a property, but a short sale is something that the seller initiates and the bank approves.
Second, a few things don't make sense to me regarding your situation, and hopefully, you can answer back with some pertinent information:
1. It sounds as if you failed to or were unable to pay for the mortgage on the home. Is that correct? How long has the mortgage been unpaid?
2. Since this is a rental unit, was the home still occupied by tenants and were they paying rent? If rent was being paid, what extenuating circumstances prevented you from paying the mortgage money.
I understand that the rental home here in California may have dropped in value from $700,000 to $300,000, but there is no bank or government program of which I'm aware that will adjust the mortgage principal down for you to meet the lower value of the home. Banks will work with most homeowners in trying to adjust mortgage rates (not principal, but the interest rates) for a short period of time to help homeowners who are in distress with their primary residence and want to keep the home. If the homeowner cannot make payments on the mortgage, then the other option is for the seller to work with the bank in a short sale of the home.
Since this was not your primary residence, however, some of the protections afforded to homeowners who have had loans forgiven in short sales may not be available to you for your rental home. Your best plan of action, right now, is to speak with a qualfiied mortgage or credit counselor in Palm Beach for advice and help on what you can do next. You may also wish to speak with a real estate attorney here in California for assistance and to learn if you have any options available to you after the foreclosure. But, hurry, time is of the essence in resolving these types of matters.
The bank has to conduct the foreclosure according to California Law. The documents you signed when you got the loan gave them permission to foreclose. You also had a responsibility to make your payments on time. If you failed to make your payments they had the right to foreclose. When you got the loan did you get the loan based on being an owner occupant? Then you turned it into a rental? Did you notify the bank of your new mailing address?
As you can see there are several factors involved that we here on Trulia would not be able to advise as it is legal in nature and your best resource is to contact an attorney who will review your documents, what has transpired and advise you on your options.
All the best to you.
At your service,
Certified Distressed Property Expert
As Ann Brocco, Allyson Alessandrini, Elena Talis and Terri vellios pointed out, your question is a legal question. As Real Estate Brokers. we are not permitted to answer legal questions.
The Attorney that Terri Vellios recommended is excellent. I recommend that you contact him.
Charles Butterfield MBA
Real Estate Broker/REALTOR
Cell Phone: (408)509-6218