Posted by: Catherine | October 4, 2010

Consumer Alert for Short Sales in California


The following “Consumer Alert” has recently been issued by our California Department of Real Estate. It mentions MANY (if not most) of the topics I’ve been mentioning here on this blog for years. Read it carefully if you’re contemplating a short sale, or if you’re interviewing for the right short sale professional to help you.

Be aware, that many agents with limited (to no) experience are now soliciting for your business. Without experience, you could end up in a heap of trouble. Further, due to their lack of experience, or desire to do as many short sales as possible, they will hand off the important dealings with the bank to a “short sale processor” or “short sale negotiator” or “short sale coordinator” or “foreclosure rescue consultant.” BE VERY CAREFUL. I’m in no way saying all of these companies are bad, but you need to be aware of a few important things:

  • Any short sale negotiator, processor or coordinator working on your deal and between you and the bank, MUST BE A LICENSED REAL ESTATE broker or licensed and working under a licensed broker.
  • Any entity, agent, processor or negotiator that wants to collect any “advance fees” or any fees payable up front, is illegal unless they have clearance from the DRE in the form of a “no objection letter.”
  • Any and all payments, to the bank, between parties or to outside parties MUST BE disclosed on the HUD settlement statement.  Any fees paid “outside of escrow” is a huge red flag and should be investigated thoroughly.
  • If your agent discloses to you that an entity, or “fictional” person is buying your home to flip it, or that the buyer is an LLC or acting with a power of attorney, know that this is a huge red flag and “may” involve fraud (I talked about short sale fraud in a previous post).
  • If you are told that an unlicensed person is working on your file, and that means ANYONE i.e. if they have an “assistant” it’s not good enough.  Remember bullet #1 above.  MUST BE LICENSED broker , or licensed agent working under the supervision of a broker.  You should ask to see the licensing information for anyone working on your file.

This consumer alert also outlines 3 of the main consequences of a short sale.

  • In some instances, a bank may pursue you (sue you, employ collections company) to obtain the difference between what was owed, and what was paid through the short sale.  This is called the deficiency balance. Be very clear on what EXACTLY your short sale approval says.  There is a big difference between release of deficiency and release of lien.  Know the difference.
  • Remember, the amount you did not pay back “could” be taxable under certain circumstances.  Be sure to read all the IRS and California State information about “debt forgiveness” and seek the advice of a qualified CPA or tax attorney promptly.
  • If you have secondary liens (2nds, HELOC, 3rds, etc) , be aware they may pursue and obtain a deficiency judgment against you after the closing – this applies in some cases whether your home leaves your ownership as a short sale or a foreclosure. So know the nature of the debt, and seek the advice of an attorney.  Remember recourse and tax are two difference things.   IRS LINK for the “Mortgage Forgiveness Relieve Act and Debt Cancellation.”   See the California State website for information about Mortgage Forgiveness Debt Relief

Anyone contemplating a short sale needs to be fully educated and not rely solely on the advice or direction of a real estate professional as we are NOT attorneys nor are we CPA’s.  You should seek the advice of those professionals for questions about recourse, tax and credit issues.

CALIFORNIA DEPARTMENT OF REAL ESTATE CONSUMER ALERT: Warning about residential short sales

Remember too, there is help for you if you want to explore options to keep your home, this consumer alert also mentions those resources, as well as there are a few listed on this blog.   Contact the Homeowner’s HOPE™ Hotline:
(888) 995-HOPE

Catherine Myers, Broker Assoc
DRE 01337828
Windermere Bay Area Properties
925-683-2125
catherine (at) diablovalley.net

Contra Costa Homes for Sale Walnut Creek, CA
Contra Costa and Alameda County short sale specialty
Serving Walnut Creek, Concord, Clayton, Pleasant Hill, Martinez, Lafayette, Orinda, Moraga, San Ramon, Danville, Alamo, Dublin, Pleasanton, Sunol, Ruby Hill, Livermore, Antioch, Oakley, Brentwood, Discovery Bay, Pittsburg and Bay Point.

I’m your short sale resource.  Referrals to attorney or tax help.  Always check with your attorney and CPA before proceeding with a short sales.  A short sale is not right for everyone and may have serious recourse, tax and credit consequences you need to be aware of.


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