The Central Valley Business Times reported yesterday that the California State DRE issued an alert regarding short sales. Read the article here. The DRE cautioned against the following:
• In some instances, the homeowner may be sued by the lender/bank for the money that was “forgiven”
• The amount not paid back, which is a form of “debt forgiveness,” may be taxed by tax agencies for the “forgiven” amount
• If there are other lenders or lien holders (such as a second or third loans), the holders of the second or subordinate liens, may file a deficiency judgment in civil court against the homeowner to get their money back, even though the first lien holder allowed debt forgiveness.
Although all of these scenarios are potential risks, they are not always the case. In order to avoid these risks anyone considering a short sale must use a real estate agent experienced in short sales and be sure to review each lender’s short sale approval conditions with a CPA and attorney prior to close.