If this is your primary residence, you will be 'forgiven' the difference (refer to CA law SB 458 - you can Google it). Make sure if you decide to pursue a short sale to interview a few Realtors before deciding which one you want to hire so you hire someone you are very comfortable with as Short Sales can be very time consuming and patience is required.
Under the new CA Law signed by Gov. Brown in July 2011, Lender(s) who agree to a Short Sale may not further bind the Seller to owe or pursue the seller for the resulting deficiency - provided the Short Sale is on a principle residence AND the financing is still non-recourse (a refinance has not taken place). For more details please refer to:
CA Senate Bill 458 Now Prohibits 1st/2nd Deficiency Judgments*
Be sure to review the text concerning the Federal Mortgage Debt Relief Act of 2007 which allows taxpayers to exclude income from the discharge of debt on their PRINCIPAL residence. The discharge of debt is typically treated as INCOME by the IRS! 12/31/2012 is the deadline to fall under this protection.
Yes SB 458 was recently passed to address the issue. Here is a link discussing the topic:
But you should contact a real estate attorney to discuss your specific situation and any tax implications.
Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states
MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
Speak to a local realtor in your area for advice. Good luck.
If your lender approves a short sale on your home and accepts less, they may forgive the balance due or issue a deficiency judgment against you for the balance. In addition if they forgive the balance, the IRS may tax you on what the bank forgives. We are not tax experts or attorneys and can't give advise on these issues. Contact an attorney and tax expert in your area before entering into a short sale for guidance.
All the best,