If you owe substantially more on your home than it is worth, you may be able to sell your home for less than the outstanding loan balance and have your lender accept the proceeds of the sale as full satisfaction of your loan. A short sale can prevent the negative consequences of having a foreclosure or bankruptcy from appearing on your credit report. A California short sale involves a buyer paying less than the outstanding balance on a mortgage and all of the proceeds being paid to the lender who considers the loan completely satisfied. This strategy can be useful when you cannot qualify for a Chapter 13 or loan modification. Because you do not have any negative credit blemishes associated with a short sale, you may be in a position to purchase another home more quickly than if you walk away and allow a foreclosure to go forward.
While a short sale can be a valuable tool for protecting your credit, the IRS and state tax authorities may consider the amount of the loan that is forgiven as income. Some people who proceed with short sales without getting legal advice end up with tax bills that they have no way to pay. A qualified Orange County bankruptcy lawyer can analyze the specifics of your situation to make sure you do not face any surprises following a short sale.