Families in Temecula, Murrieta, Menifee, Lake Elsinore, in fact all of Riverside and San Bernardino counties are facing the same question, namely do I continue to pay for my home that is tens of thousands of dollars underwater, or do I let it go back to the bank?
There are no easy answers to this question. Each individual situation is different.
Short Sale
A "short sale" is a process where you get "permission" from the lender to sell your house for an amount that is less than what you may owe the lender. In other words, the sale price falls "short" of the amount you owe the lender. Generally speaking, a short sale is beneficial if you live in a state that allows lenders to sue for a deficiency -- but only if you get your lender to agree (in writing) to let you off the hook.
California's Code of Civil Procedure, Section 580(b) states, "No deficiency judgment shall lie in any event after a sale of real property... for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property... given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser."
Therefore, In California, unless you have a second trust deed on your property, you don't need to arrange for a short sale. If the sale proceeds fall short of your loan, the lender can't do anything about it. If you have a "second" make sure to have the second note holder sign off on the sales agreement and waive their right to sue you. If you decide to go forward with a short sale, have a real estate attorney review the sales documents to make sure the second is waiving its rights to sue you.
How will a short sale help? The main benefit of a short sale is that you get out from under your mortgage without liability for the deficiency. You also avoid having a foreclosure or a bankruptcy on your credit record. The general thinking is that your credit won't suffer as much as it would were you to let the foreclosure proceed or file for bankruptcy.
Beware of tax consequences. A short sale may generate an unwelcome surprise: Taxable income based on the amount the sale proceeds are short of what you owe (again, called the "deficiency"). The IRS treats forgiven debt as taxable income, subject to regular income tax. The good news is that there are some exceptions for the years 2007 to 2009. See your tax professional for more information.
Contact us to speak with an attorney at our firm about your questions or current financial situation.
CRISTIANO & LILLARD | |
41707 Winchester Road, Suite 205 | 750 Terrado Plaza, Suite 241 |
Telephone: 951-296-0053 | Telephone: 626-859-1011 |
