San Diego Homes

Lenders Can’t Pursue Home Sellers for Deficient Funds After a Short Sale

On August 19th, the California Senate passed SB 931. This bill exempts all first mortgages for dwellings of 1 to 4 units, owner or non-owner occupied, even hard money first mortgages, from a deficiency judgment after a short sale. This bill, that passed the Senate unopposed, heads to the Governor’s desk this week. Governor Schwarzenegger is expected to sign the bill into law.

A short sale is when the lender accepts a purchase price for less than what the seller owes on the property. Only a seller  in default can arrange a short sale. While deficiency judgments were rare, there was always that risk looming in the distance.

Now that a lender can not get  deficiency judgments, there still maybe tax consequences of the short sale. If the purchase price of your home is less than what your mortgage balance is, you maybe responsible for taxes on the difference of the two. For example,  Sam purchased her home for $500,000, put 20% down, $100,000 and took out a loan for the remaining $400,000. After paying payments for a couple of years, she defaults and still owes $385,000. The homes in her area are now selling for $350,000. The difference between the amount she owes, and the selling price of her home, $35,000 is reported to the IRS as income. This ‘income’ is taxed at the same rate as her salary.

It is always best to contact an experienced, reputable Realtor, when considering any action with your home. Mindi Landry represents buyers and sellers in the North San Diego County area. She  has  34 years experience in real estate  and is extremely familiar with short sales, from both sellers and buyers end. Contact Mindi by calling her at (760) 737-3767.

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