A California short sale, or short sale in any other US state for that matter, has become a popular way to sell a property in recent times. This is primarily because of the dreadful foreclosure crisis the country has been experiencing. It is a form of loss mitigation, and prevents a foreclosure from occurring, but still has quite a dramatic effect on the home owner’s credit rating.

If a home owner can prove beyond doubt to a lender that he is in dire financial circumstances and can no longer afford to repay his mortgage lien, the short sale may be allowed. This is known as proving economic or financial hardship. The sale of the real estate will mean that the lender takes a loss on the actual loan amount owed to them.

A mortgage lien is the legal agreement which uses the actual property to secure the underlying loan. California is primarily a “trust theory” state however, and this means that the Trust Deed and not the mortgage is the primary instrument of security. The Trust Deed is also a legal entity and essentially the property is held in trust until such time as the underlying loan has been paid in full.

A Trust Deed generally contains a clause which is called a “power of sale”, which allows the trustee to foreclose on the property by non-judicial means. A non-judicial foreclosure neither takes as long to finalize, nor is as expensive as a judicial foreclosure. But it can still be a lengthy process to bring to a head, so Californian lenders will consider allowing a home owner access to the short sale, provided they qualify.

The US Government has also taken a look at the short sale with a great deal more interest in recent times in an attempt to bottom out the foreclosure crisis. However the process, unlike foreclosure, is not actually governed by law. Only the length of time to expedite a short sale has undergone some legislative scrutiny at this stage.

The home owner is expected to facilitate a short sale through the workout or loss mitigation department of their bank or other lender. Sometime the lender will allow the proceeds of sale to settle the debt in full, even if there is still an outstanding amount owed. But this is the exception and not the rule, they often still pursue the home owner with a deficiency judgment.

There are some US states that do not allow lenders to pursue deficiency judgments, and fortunately California is a one-action rule state. So in the case of a non-judicial foreclosure a deficiency judgment is not allowed, this rule should also apply to the short sale. However some lenders will try to pursue the home owner for settlement in full. Best make sure if you are in this position that you know what your rights are!

A short sale is a hybrid transaction which is accepted business practice, and as we said previously, not governed by any regulatory agency. It can only take place under extenuating circumstances. However if you find you find yourself under circumstances such as these and you lender will not allow a short sale to take place, you can approach government agencies which provide for mortgage assistance to help negotiate with your lender for this option.

By: Randolph Rempe

About the Author:
All the California Short Sale facts, without leaving a single stone unturned, now available at http://www.nphsrealestate.org/short-sale

Foreclosures & bankruptcies are on a rising toll in USA for the past few months. The reason is the dipping economy and crashing property market. As a result – neither the borrower not the lender is getting benefited. Coming to foreclosures, it is an unfortunate experience for a family and loss making venture for the mortgage company or the lender. Now the Federal Government has urged the banks to look in for a long term benefit. For that they need to stop the foreclosures and help the home owners by refinancing or providing them with loan modification aid. Hence, a new department has come into existence in all the banks of United States – loss mitigation. As the name suggests, this department is meant to mitigate the loss of the bank as well as the borrower which is known by the name as loss mitigation service.

This department actually acts as a third party who puts forward the case of the borrower in front of the bank and work out a means to save their home. There are several means to do so – loan modification, forbearance, deed in lieu of foreclosure, personal loan to pay off the missing payments, adjusting this money towards the end of the loan term, etc. The representative of the loss mitigation department takes up your individual case and guides you the right means as a counselor.

Steps to contact Loss Mitigation Department

Here are some tips that would help you have a healthy & prompt negotiation with the lender or the mortgage company through the loss mitigation department: