I think you will find the information in this link most helpful (copy and paste to your browser): http://www.car.org/legal/leader-articles/deficiency-judgment
I am happy to explain more to you or refer you to an attorney and accountant that will speak to you on the phone for free.
Give me a call for more information.
Real Estate Agent | Broker Associate | REALTOR
Century 21 Fine Homes and Estates
for me to add, especially look at Emily's response...
But just to make it really short for you, hire an experienced short sale attorney and do NOT do this
alone with just the bank.... you want to make sure that the lender cannot come after you later,
the rules in states are different. So make sure you find an experienced short sale real estate attorney,
to protect you during the entire process.
Your concern is definitely valid, but since we do not know all the circumstances here, get legal
Edith YourRealtor4Life and Chicago and North Shore Expert
Working always in the very BEST interest of her clients
@Properties Chicago / North Shore / Winnetka Illinois
"The most common situations when a foreclosure or a short sale does not result in cancellation of debt (COD) income involve a non-recourse loan. A non-recourse loan means the lenderâ€™s only remedy in case of default is to repossess the property the lender cannot pursue you personally in case of default. A purchase money loan (that is, a loan taken to â€œpurchaseâ€ your home) is generally considered to be a non-recourse loan in California. Refinances, second mortgages, and â€œcash outâ€ loans are generally recourse loans."
According to this is, my understanding of it is: If yours is a purchase money loan for residential 1-4 units, you don't need to do anything. They can't collect the remainder. If its not purchase money, better get it in writing.
Taxes are a separate issue but worth looking into as well
If you "just walk away", it is not over & they Can come after you.
The Mortg. Debt Forgiveness Act, whether it expires or not, won't affect you if you have a purchase money loan or loans, since CA is a non-recourse state, you can talk to a CPA about this, it's the way the IRS rules handle 'cancelled debt'. Even if you have a refinanced loan or loans, although typically a refi'd loan becomes non-recourse, if you didn't take any cash out, it can still be treated as though it's non-recourse because you didn't receive "income". What could affect Californians if the MDFA is not extended is the liability to pay STATE income tax only on the negative debt & even then, it may be possible in your situation to prove insolvency, like with IRS Federal form 987.
What Can be taxed is if you took out $100K in an equity loan & went & bought a boat or paid off credit cards etc, however if you can prove that some of that money or all of it went into upgrading or repairing your home, your tax consequence may be less.
If you're talking about short selling investment property or property that you Cannot claim you lived in for 2 out of the last 5yrs, you will be taxed regardless of the Mortg Debt Forgiveness Act expiring.
Just about every Realtor these days can talk a thing or two about short sales, but not all can walk the walk. I have seen agents who have listed 100 short sales, but only successfully have closed 20 or have listed 15 & only closed 3. I have a 100% success rate, every short sale listing I've taken has successfully closed w/ an avg approval time of 65 days w/ the major lenders. Between myself & my team, we've closed over 760 short sales since 2007.
Shoot me an email if you'd like to talk about your situation further, I don't look back on this same Trulia thread for answers posted after mine.
Emily S. Knell
Realtor Since 1996
Realty ONE Group
Short Sale Specialist - 100% success rate
It's always best to seek the advise of your accountant since they have a better knowledge of your finances and if you haven't chosen your agent it's always important that you work with an agent who is certified and knowledgeable about short sale to make sure the process is done correctly and you are protected.
If you have any questions and need to go over in detail about your specific situation, I would be happy to help.
Blackstone Realty Group
CDPE, SFR, ABR
You're looking for something that says "non deficiency" in the approval letter. means that the lender is giving up their right to go after the homeowner anytime in the future to collect any additional monies. There is also the Debt relief act of 2007 that is set to expire 12/31/2012 that protects you. Although the best advice is you should contact your CPA and/or tax advisor.
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