California Senate Bill 931 (SB 931) – This requires that first mortgage lenders forgive the deficiency when they accept a short sale on a dwelling with up to 4 units. (The deficiency is the difference between what was owed on the mortgage, the expenses of sale, and the amount it was sold for during the short sale). Without the protections of SB 931, an individual short sale seller had to negotiate to make sure that the bank forgave the deficiency in the short sale approval. That uncertainty has been removed when dealing with a first mortgage lender in California by this new SB 931 legislation.

California Senate Bill 458 (SB 458) – Signed into law by Governor Jerry Brown on July 15, 2011 and effective immediately thereafter, it prevents junior lien holders who have accepted a short sale from pursuing a deficiency against the short sale seller. This law expands the protection provided in Senate Bill 931, and is a major development in the area of California short sales. And, I think it makes the case in favor of short sale vs. foreclosure for many distressed California homeowners.

IRS Guidance & Franchise Tax Board Guidance on liability for short sale debt is favorable for Californians. I always advise my clients to obtain tax advice on their short sale and how the debt will be handled. The gist of the letter is that because CA law makes the short sale debt non-recourse (uncollectable), the typical “cancellation of debt” taxation that would apply to a forgiven debt may not apply. Since this opinion letter from the IRS was issued in September 2013, most have reported back that the effect of their short sale was negligible on their tax liability. Each person’s tax situation is different and a tax adviser should be consulted.

Tni LeBlanc is an independent Real Estate Broker, Attorney, and Santa Maria Short Sale Agent. She is a Certified Distressed Property Expert (CDPE) and Certified HAFA Specialist (CHS) and Short Sale Foreclosure Resource (SFR) serving the Santa Maria, Orcutt, Lompoc, Nipomo and Five Cities area of the Central Coast of California. She has successfully completed short sales with Bank of America, Wells Fargo, CHASE , GMAC, Seterus, IndyMac, Ocwen, CitiMortgage, Green Tree Servicing, Specialized Loan Servicing, HomEq Servicing, Wachovia, Coast Hills Federal Credit Union, Select Portfolio Servicing, Fannie Mae, Freddie Mac, and others.