What Is a Real Estate Short Sale in California?
If you sell your home for less than the mortgage you hold on it, this is known as a short sale. It is a technique that is typically used to avoid foreclosure if you are delinquent on your mortgage payments. Laws governing foreclosure and short sales vary from state to state, and California has its own statutes.
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Deficiency Judgments
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The key to a short sale is to negotiate with your lender to avoid being pursued for the difference between the sale price and your outstanding mortgage. You will likely need a qualified professional to help you with this negotiation, so find a realtor who's experienced in short sales.
Timeline
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In California, when an offer is submitted for a property, the seller must request a short-pay agreement from the lender. There is no deadline for the lender to provide or deny this. However, once the lender has agreed in principle to the short sale, he has 21 days to accept or reject the actual short sale price.
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The Lender's Perspective
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The bank may well have a vested interest in granting you a short sale if you find a willing buyer. California in 2010 still has the highest foreclosure numbers in the nation, and many lenders have more properties on their books than they care to deal with. Many would rather have a quick, clean short sale that will in the end save them more money than going through the foreclosure process.
Proving Hardship
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In order to convince your lender that the best way out of your situation really is a short sale, you will have to provide a detailed account of your financial situation, explaining why you cannot make your mortgage payments. This will usually include tax returns from the last 2 years, your most recent paystubs and bank statements, and your original loan paperwork. If you have recently lost your job, or taken a pay cut, these can be circumstances the lender will consider.
Tax Issues
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In some circumstances, the amount forgiven in a short sale--the difference between the sale price and the mortgage amount--can be treated as taxable income. For federal purposes, the Mortgage Debt Relief Act of 2007 established that debt forgiveness for the original loan on the homeowner's principal residence was exempt from federal tax. Most states have followed suit and exempt debt forgiveness from state tax, but California does not. In March 2010, Governor Arnold Schwarzenegger vetoed similar legislation in California that would have exempted short sellers from state tax, so sellers can still receive a 1099 subjecting them to a state tax bill on the forgiven debt.
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References
- Photo Credit expensive home image by Karin Lau from Fotolia.com
