When homeowners in California run into financial difficulties and owe far more on mortgages than their properties are worth, their lenders may sometimes agree to accept what are known as short sales. Short sales prevent lenders from taking even larger losses and allow them to avoid paying the costs involved in pursuing foreclosure. However, these complex real estate transactions can be time-consuming and difficult to close.
Since lenders lose money when they accept a short sale, they only consider them when certain requirements have been met. Borrowers must be able to show that they have been coping with financial difficulties for some time and are unable to refinance their mortgages to lower their payments. Some lenders may demand that the property involved be placed on the open market for a specified time in order to better evaluate the short sale offer.
Lenders are cautious because California is what is known as a nonrecourse state. This means that lenders in the Golden State are not able to recover the losses they suffer in short sales by filing lawsuits against borrowers. However, this law does not always apply to the holders of second mortgages or debt consolidation loans. Short sales became an even more attractive option for struggling California homeowners in 2010 when lawmakers voted to protect them from tax liability on the relief they receive from lenders providing the property involved was used as a primary residence.
Short sales can be particularly difficult to complete when several lenders are involved. Attorneys with experience in this area may act proactively in these situations and pursue approvals from all relevant parties as quickly as possible to prevent deals being held up by unnecessary delays. They could also remind reluctant lenders of the risks and costs involved in pursuing foreclosure.