If I get approved for a Short Sale by Flag Star Mortgage for $100k less than I owe, how do I make sure I'm not taken to court for the remainder?

Asked by Nelms1, Ladera Ranch, CA Mon Dec 17, 2012

Help the community by answering this question:

+ web reference
Web reference:


CaLee McManus, Agent, Irvine, CA
Mon Dec 17, 2012
California passed a deficiency law July 2011to protect homeowners.
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.

CaLee McManus
Ladera Realty
1 vote
Larry Webb,…, Agent, Ladera Ranch, CA
Wed Jul 17, 2013
The best advice is to consult with appropriate legal counsel. REALTORs are not legal advisors and some in this thread have given you the best answer....highly recommend you consult with a legal pro.

Larry Webb
Real Estate Agent | Broker Associate | REALTOR
Century 21 Fine Homes and Estates

0 votes
Edith Karoli…, Agent, Winnetka, IL
Tue Dec 18, 2012
You received a lot of really detailed information from Realtors below and there is really not a whole lot
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
0 votes
The Medford…, Agent, Fremont, CA
Tue Dec 18, 2012
You want to make sure your final documentation clearly states that the bank(s) will not pursue any further recourse and your settlement with them constitutes payment in full. If you are really concerned, have an attorney look over your final approval.
0 votes
Todd Foust, Agent, Anaheim, CA
Mon Dec 17, 2012
Here it is straight from the source:


"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 lender’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 “purchase” your home) is generally considered to be a non-recourse loan in California. Refinances, second mortgages, and “cash out” 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
0 votes
Emily Knell, Agent, Huntington Beach, CA
Mon Dec 17, 2012
.Re: being taken to court for Deficiency Judgment: ONLY IF YOU DO A SHORT SALE will you be safe from the bank ever coming after you for a DJ, if the 1st & / or 2nd lien holder AGREE to the terms of a Short Sale, they MUST release you of "any & all liability" & the loan is considered "PAID IN FULL".

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
562-430-3053 c
Realtor Since 1996
Realty ONE Group
Short Sale Specialist - 100% success rate
0 votes
Rob & Janet…, Agent, Ladera Ranch, CA
Mon Dec 17, 2012
It all depends on your circumstances. As one of the top short sale agents in Ladera I make sure during the negotiations process that the lender understand the true hardship of the borrower and make sure the debt is forgiven. There are some key points that the borrower will need to qualify for this which one important one is that the home is your "Primary Residence". Also there are government back programs such as the HAFA which also prevents any judgment deficiency. Lastly, CA being an non recourse state depending on the type of loan you have may also prevent you from having any deficiencies. As for the "Debt Forgiveness Act of 2007" that is set to expire by year end and the we are still waiting to see if the senate will renew that bill.

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.

Janet Campbell
Blackstone Realty Group
0 votes
Steve Pattin…, Agent, Rancho Santa Margarita, CA
Mon Dec 17, 2012
The new law in California states that if a lender agrees to a short sale then there is no further recourse for the remainder after the sale. You may receive a 1099 for the difference which means you may pay taxes on the difference but the lender has agreed to accept the written amount as payment in full for your loan. The Mortgage Forgiveness Act expires on December 31, 2012 and no one knows if this will be extended.
0 votes
Will Scott, Agent, Ladera Ranch, CA
Mon Dec 17, 2012
Really two different sections... The forgiveness of your 100k mortgage debt will be dismissed in your short sale demand letter, however; there could be tax consequences you would incur depending on your specific situation.
0 votes
Alex Vargas, Agent, Irvine, CA
Mon Dec 17, 2012

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.


Alex Vargas
Weichert Realtors
(714) 269-8775 Mobile

DRE #01332235
0 votes
Will Scott, Agent, Ladera Ranch, CA
Mon Dec 17, 2012
There are a lot of parts to this answer. Feel free to contact me direct if you would like details on how to protect yourself. You can view my Ladera Ranch history at http://www.realestatewill.com I have tremendous experience in short sales and am an active member of our community. Wish you all the best.
0 votes
Mark Gundlach, Agent, Newport Beach, CA
Mon Dec 17, 2012
There will be stipulations in the approval letter but, you can also request a written statement from the bank that your debt has been forgiven in the form of accepting the short sale, and that no further action will take place. Your agent should be able to guide you in the right direction on this.
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more