Sacramento Real Estate Views

New California Law Favors Underwater Homeowners

Makes A Tough Decision Easier

A new law that went into effect on January 1, 2011, making it easier for struggling homeowners to sell their homes short.   California Code of Civil  Procedure section 580e changes the language in the law and prevents a lender from seeking a deficiency judgment against any homeowner of 1 to 4 units on the first mortgage secured by the deed of trust on your home.

It now doesn’t matter if your home is a principal residence or investment home, original purchase money loan or refinanced loan.  They are all now non recourse according to the new law.

Important Point:  This applies to first mortgages only!  If you have an equity line or second mortgage, you could still be liable and the lender could seek a promissory note at the close of escrow or require additional funds to close escrow from you or the buyer.

If you have only one loan on your home, you’re covered if you decide to walk away from your home.  This provides the homeowner who may have been liable for selling short but not in foreclosure make the decision that’s best for their credit score; selling short.

Tax Ramifications of Selling Short Or Foreclosure

If you’re selling your home for less than the mortgage amount in a bank approved short sale, the lender is required by the IRS to submit a 1099 and you could be liable on the taxes on the amount of the difference in the sales price of the home and what is owed.

There are several ways to be released from the tax liability but you’ll have to speak to an accountant directly, and I recommend you do, to ascertain if your situation qualifies.  If you need a referral for an accountant, I have a great one who I’ve worked with for years.

Selling Short Is THE Option

Our market is not going to get better soon according to so many sources.  Many people are underwater on their mortgages and need to make the financial decision to keep their homes or sell short, take the short term credit hit, rent then buy again in a few years.

Selling short is a better option for your credit report than foreclosure and now with this new law, there isn’t any reason for someone who has only a first mortgage on their home to go through the foreclosure process.  Additionally, it is possible for those with a second mortgage to also benefit from this new law and promissory notes can be negotiated out of the of a short sale approval.

If you’re considering a short sale, please contact us.  Our services are free to you, you pay nothing when you choose to sell short to anyone.  Please fill out the form below and we’ll be in touch with you promptly.

Thanks for visiting!

cforms contact form by delicious:days

No related posts.

Tags: california law 580e

This entry was posted on Sunday, March 6th, 2011 at 10:59 am and is filed under Short Sale Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply