By Jeffrey Hacker
As of the first of this year, if a lender who has a first deed of trust approves a short sale, the lender may not pursue a deficiency (the difference between the sales price and the amount owed to the lender) against the seller of the property.
These restrictions, however, do not apply to junior loans (i.e., a second or third trust deed as two examples). However, it is anticipated that legislation will be introduced into the legislature extending this protection to homeowners who refinanced their homes so long as all of the refinancing proceeds were put into the home.
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The California Association of Realtors (CAR) has prepared a new advisory form on Short Sales. This form would be available either directly from CAR or from your realtor.
The advisory covers such subjects as “What is a short sale?” “Alternatives to a short sale,” “Lender agreement to a short sale,” “Seller’s liability on the debt,” “Credit and tax consequences” and “The broker’s role,” to name a few.
This advisory is not a substitute for obtaining counsel, but it is a good starting point to understand some of the options and pitfalls of these options. Short sales also have significant tax ramifications.
It is therefore imperative that you consult with your CPA or other tax professional to understand what these consequences are before agreeing to a short sale.