Short Sale Information and Favorable Laws for California Homeowners
Here are the Short Sale related laws you should know about as a homeowner. Please seek the advice of a real estate attorney and a tax professional on how these laws apply to your specific situation.
First Mortgage: SB 931 Deficiency Waiver on Short Sales
Second Mortgages: SB 458 Release of Liability on Short Sales in California
SB 931- When the First mortgage holder of your loan accepts full payment and satisfaction of all your outstanding first loan from the successful completion of the sale of your home, your lender is is prevented from pursuing a deficiency against you even after a short sale. This is great news!What this means to you as a homeowner in California is that this releases you from further liability (deficiency) when the bank accepts and approves the completed short sale. Click here to read more information on SB 931 and see how this may apply to your individual situation. At any rate, whenever you are negotiating a short sale, it would still be beneficial to have your real estate agent ask for the lender to issue a short sale approval letter with the verbiage indicating a waiver of future deficiency and no promissory note. Also read more about the favorable law Code of Civil Procedure 580-e here.
|Effective as of July 15, 2011, California homeowners who sell their homes through a short sale and who have subordinate loans such as home equity line of credit (HELOC) or fixed secondary mortgages, are now extended the protection against deficiency. This means that if your second lender agrees to the short sale, your lender must accept the proceeds from the short sale as a payment in full of the outstanding balance of the loans.This means that if you are a homeowner in California who sells your home in a short sale that the bank has approved, you will be released from liability (deficiency) not only on your first mortgage (SB 931) but also on your second mortgage under SB 458 in the event that the bank accepts and approves the short sale event.Receiving short sale approval is not enough, you would have to complete the short sale. Click here to read information on SB 458 and consult a real estate attorney to see how these short sale related laws may apply to your individual situation.|
What is a Short Sale
How to Short Sale Video
California: Short Sale Income Tax Relief from California State Income Tax 2009-2012
Federal Tax: Short Sale Income Tax Relief from Federal Tax extended in 2013!
In California, homeowners who sell their home through a short sale may qualify for the California Mortgage Forgiveness Debt Relief under SB 401, which was enacted on April 12, 2010. This mortgage forgiveness debt relief act allows taxpayers who have had all or part of their loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. This tax relief for those who short sell their homes in California apply to discharges of qualified residence indebtedness on or after January 1, 2009 and before January 1, 2013. Read more about this from the California Franchise Tax Board website under SB 401.
The California Tax Relief limits the amount of qualified principal indebtedness up to $800,000 for those who file as married, joint, head of household and up to $400,000 for those who file as married/RDP filing separately. See State of California Franchise Tax Board for more details. In order to claim tax relief, your would need to file Form 540 or Form 540X for a previously filed tax return.
Consult your tax advisor regarding how this tax relief may apply to your individual situation.
Currently there is a disparity between the Federal and State of California Mortgage Debt Relief Forgiveness Tax Treatment for 2013
2013 Update on State of California Short Sale Mortgage Debt Relief Forgiveness:
SB-30 Taxation: Cancellation of Indebtedness: Mortgage Debt Forgiveness in California.This bill would extend the operation of the exclusion of the discharge of qualified principal residence indebtedness to debt that is discharged on or after January 1, 2013, and before January 1, 2014.
Committee Hearing Date on the 2013 California Mortgage Debt Relief Forgiveness Act is scheduled on 05/23/13. See status of the California Short Sale law here.
The federal Mortgage Forgiveness Debt Relief Act only provides for the exclusion of COD income relating to qualified principal residence. If you have COD income as the result of a foreclosure on other property, such as a second (vacation) home, rental, or other business property, you may still be able to exclude COD income under other provisions if:
|Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, short sale, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
The Mortgage Forgiveness Debt Relief Act of 2007 applies to original or refinanced loans that were used to acquire, build, or improve upon on your primary home.
If the loans forgiven were loans that you used to purchase the home (purchase money loan) or loans used to build or improve the home, most likely you would not have to pay taxes if you complete a short sale before December 31, 2013. Note that a portion or all of the forgiven amount would be considered taxable income if the forgiven amount, or if portions of the loans forgiven were used for other purposes- i.e. cash out refinance used to payoff i.e. car loans, credit card debt, etc.
Click here to read more information on the Mortgage Forgiveness Debt Relief Act of 2007
Is Cancellation of Debt income always taxable?
Consult your tax advisor regarding how this short sale tax relief may apply to your individual situation
Update: The tax implication of Short Sales completed in 2013 in California is uncertain as SB 30 is not officially passed as of this writing.
A lot of the tax laws that favor selling your home through a short sale in California expire by December 31, 2013. This means that if you have decided to short sell your home and qualify to avoid deficiency and not pay taxes on mortgage forgiven debt associated with a short sale, now would be the time in order to close escrow on a short sale by 2013.
Short Sale Process Explained
Why Short Sale before December 31, 2013?
Short Sale Process
Watch the Video Below on How a Short Sale Works
Typically when deciding to do a short sale, a few things that you may want to consider are the deficiency and tax consequences of selling your home at a price less than what you owe your lenders.
The goods news is that in 2013, if you decide to do a short sale, there are a few favorable laws that you should know about that are currently in effect if you sell your home by December 31, 2013. But, the clock is ticking. So the time to act is now if you wish to complete the short sale process on your San Diego home before these laws and their benefits to you expire.
Most lenders will require you to use a professional real estate agent to assist you in completing a short sale. There is zero out of pocket money for you when you use us as your short sale real estate agent Team, as the lender pays commissions out of the proceeds of the sale. Be sure to ask us about possibly qualifying for up to $3,000 in relocation assistance as part of your San Diego short sale.
Short sales take time. We have all heard the horror stories about short sales taking months on end to close. But, that has not been our experience. We’ve found that when documents are managed properly, and consistent communication with the lenders is performed, that short sales can be completed in a very reasonable time frame.
Always seek out the guidance of an experienced professional real estate Team when considering a short sale. We have the experience to clearly explain your options to guide you in the right direction, and get your home sold so that you can get a fresh start. Read the Testimonials from our clients describing their experience with us.
If you would like to have a similar experience with your Listing Agent Team, just insert your phone number into the simple form below and we will call you for an informal and confidential chat.
Related Short Sale Articles
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- Buying a house after a short sale
- California Foreclosure Timeline Explanation
- Should you do a short sale in 2013? Short Sale Laws that favor home sellers in California in 2013
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- Short Sale Agents in San Diego County Homeowners
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Testimonials from clients we worked with on Recent short sales:
After sitting down with one real estate agent who introduced the idea of a short sale, web searches on short sales and selling condos in Vista were done which lead to agents Jean and Ken Tritle. Initially the thought was to get a second opinion to further solidify the decision to move forward with a short sale with the first agent. After meeting with Jean and Ken and experiencing their professionalism, initiative, wealth of knowledge, and pure passion they have for real estate, it was known that both short sale was the way to go and that Jean and Ken were the best agents to help with that process. As the process went on, they provided knowledge about what the process entailed, explained terminology in an understandable fashion, were very respectful and responsive to questions/comments/concerns and made the short sale process as comfortable for us as possible. While the personal interaction with Jean and Ken was first class, their attention to details, promptness in responses with financial institutions, HUD, buyers was excellent. If you are someone that wants to get something done in the real estate market, either buying or selling, go with Jean & Ken Tritle. – Lorenzo, V., North County San Diego, September 2012
Jean and Ken did an amazing job selling our home, and were highly recommended by our friends. The entire process took nearly three months to complete, but their diligence, professionalism and support never faltered. In comparison to other real estate teams I have worked with, Jean and Ken truly raise the standards within the industry. – Michael S., San Elijo Hills, San Marcos, CA, April 2012
Realtor agent Jean Noriega-tritle is very deserving in all aspects of this review. A proven realty professional in her field. My property was sold in the least amount of time. Avel L., American Canyon, CA., January 2011