California's Mortgage Debt forgiveness slated to expire next year... Its to time to play strategic defaults and short sales

Mortgage Forgiveness Debt Relief Extended

Mortgage Forgiveness Debt Relief Extended - Updated 04/13/10

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.
New law - Taxable years 2009 through 2012

California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges that occurred in tax years 2007 through December 31, 2012. The amount of qualifying indebtedness is less than the federal amount and California imposes a state-only limitation on the total amount of relief excluded from gross income. The following summarizes the differences between the federal and California provisions. Federal provision applies to discharges occurring in 2007 through 2012, and:

Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
Does not limit the debt relief amount; it only limits the indebtedness amount used to calculate the debt relief amount.
See the federal law Mortgage Forgiveness Debt Relief Act and Debt Cancellation for more information.

California provision applies to discharges that occurred in 2007 through 2012, and:

California has a new short sale law. S B 931

Short Sale attorney, stop foreclosure, real estate attorney, short sales in San Diego. Orange County short sales

California dramatically changes Short Sale Law, in my opinion.
Senate Bill No. 931 is signed into Californial law by Govenor Schwarzeneger. This became California’s short sale law around the same time he vetoed a more expansive law. I think he did a great job.
And I think it will turn out to be great for homeowners who only have one loan on their on their residence. In my experience most short sales still seem to involve two loans. But as property values start to return to 1990s pricing, we are starting in some areas we are starting to see more owners who have only one loan. (This law will also prevent some strategic defaults, as myself an other foreclosure attorneys will have to advise fewer people that a foreclosure may be more air tight than their short sale approval letter.)

Cal. Code Civ. Pro. 580d does not bar a deficiency for a sold out junior

Deficiency After Nonjudicial Foreclosure

Cal. Code Civ. Pro. 580d does not bar a deficiency for a sold out junior (see Walter E. Heller Inc. v. Bloxham, 176 Cal.App.3d 266 (1985)), although, as we have seen, section 580b will bar some sold out juniors from recovery of a deficiency. However, the holder of a junior deed of trust that has sold itself out through non-judicial foreclosure on its senior lien will be barred from a deficiency on the note secured by the junior lien. In Simon v. Superior Court, 4 Cal.App.4th 63 (1992), a bank gave two separate, sequential loans to a debtor. The first loan, for $1,575,000, was secured by a first deed of trust on the debtor's personal residence. The second loan, for $375,000, was secured by a second deed of trust on the same property. Neither loan was purchase money. After default, the bank non-judicially foreclosured the first, credit bidding less than the amount due, and then sued the debtor for $375,000 on the second note. The court barred the bank from recovery on the second note, holding that it amounted to a deficiency barred by 580d.


Before you walk away  from two loans, make sure you understand the law related to sold out juniors and short sale law.

Sold out junior law is pretty well settled, so you may have to consider your other options such as pursing a short payoff or short sale.

Debtor's Dilemma: Pay the Mortgage or Walk Away - WSJ.com

Walk Away warning. Banks may decide to pursue the deficiency in some states.
By the way this wall street journal article is a bit misleading. Lenders are frequently able to sue for the deficiency on second loans in CA. for more info on California anti deficiency laws and Walk Away plans.

Debtor's Dilemma: Pay the Mortgage or Walk Away - WSJ.com: "Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower's other assets. 'We will try to reduce people's payments if they have a hardship,' says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. 'But we have a financial responsibility to get people to pay what they owe if they can afford it.'

Steven Olson, a loan officer and roof installer in Roseville, Minn., defaulted in 2007 on a plot of land in Florida he had bought as an investment. 'I thought I could move on with my life,' he says. But the lender, RBC Bank, a subsidiary of Royal Bank of Canada, sued him, seeking to make him pay more than $400,000 to the bank to cover its losses on the loan. Mr. Olson has hired a Florida lawyer, Roy Oppenheim, to resist the claim. An RBC spokesman declined to comment."