Before You Hire a Short Sale Realtor, Talk to a Short Sale Attorney First. It Is Free.
The federal Mortgage Debt Forgiveness Act has expired. What your realtor negotiates in your approval letter can now decide whether you owe taxes on debt you thought was forgiven.
A non recourse California loan does not protect you automatically. It depends on whether your approval letter is properly negotiated and drafted. We review that, free, before you sign anything.
Free initial review of your situation. Full representation is a separate engagement.
(858) 324-8855John McConnin | California Attorney & Real Estate Broker
Why Your Approval Letter Matters More Now
A short video explaining how the expiration of the Mortgage Debt Forgiveness Act changed what is at stake in your short sale approval letter.
Request a Review With John
Discuss your loan type, your approval letter, and the tax and deficiency risks you may not have been told about. Free, before you sign anything.
Free initial review of your situation. Full representation is a separate engagement.
You Can Have an Attorney on Your Team at No Cost to You
As a California real estate broker and attorney, John McConnin and his team handle short sales all over Southern California and work with Realtors all over the state. That means you can have an attorney advising you, reviewing your approval letter, and negotiating with the bank while your Realtor focuses on selling the home.
Come to Us First and You Never Pay Us Out of Your Own Pocket
If you contact us first, we will never charge you for negotiating or overseeing your short sale file. We get paid by the bank, out of the realtor fees and, in some cases, legal fees the bank agrees to pay. We do the realtor work ourselves or we work with a Realtor you choose, or one in our network who follows our guidelines for how to negotiate a short sale properly. Either way, the bank pays us, not you.
You get a free short sale review. We determine whether your situation is a green, yellow, or red light short sale.
We talk with you about who the Realtor will be. A Realtor you choose, or one in our network who follows our guidelines.
We make sure the bank pays the realtor fees and lawyer fees, not you. You never pay us out of your own pocket.
We Work With Your Realtor or Ours
We can advise you and review the approval letter no matter where you are in California. For files where we also negotiate with the bank, we either do the realtor work ourselves or we bring in a Realtor you already know, or one from our network who is willing to follow our guidelines for how a short sale should be negotiated. The key is that you contact us first. That is what lets us make sure the bank pays the fees instead of you.
Free review. We tell you your light. Then we talk about next steps.
Why This Matters Now
For years, the federal Mortgage Debt Forgiveness Act protected most short sale sellers from owing taxes on forgiven debt automatically. That protection has expired. Now, whether you owe taxes on a short sale often comes down to one document: the wording of your lender's approval letter.
Here is what most people do not know. Even if you have a non recourse loan under California law, a poorly written approval letter, one that does not clearly address the deficiency, or that leaves language suggesting you could still be pursued for it, can give the IRS grounds to argue the debt was never actually forgiven in writing. That can mean owing taxes on a $50,000 to $100,000 deficiency you thought was gone.
We review the letter before it is signed, and negotiate it when it needs to be stronger. This is not guaranteed in every case, but it is the single highest leverage thing an attorney can do in a short sale.
What Light Is Your Short Sale?
Where you fall depends on your loan type and how well your approval letter is negotiated. Here is how we think about it.
A non recourse loan, and an approval letter that has been properly negotiated and drafted to mirror the protection the law already gives you. This is the strongest position: minimal ambiguity on debt and tax exposure.
Two different situations land here.
Improved from Red
You started with a recourse loan. Through negotiation, the approval letter is written well, and there may also be a legitimate path to exclude the forgiven debt from taxable income, for example through insolvency, bankruptcy, or a properly disputed debt, sometimes requiring specific supporting language in the approval letter itself. This can be a real improvement from where you started. It is not the same as the certainty of a true non recourse Green Light.
Downgraded from Green
You have a non recourse loan, but the approval letter is poorly written, unclear, or silent on the deficiency. Some sellers in this position decide the remaining ambiguity is still worth accepting to avoid foreclosure. That should be a choice you make with full information, not something that happens by default because no one reviewed the letter.
A recourse loan with no negotiated protection yet, or a short sale being offered on terms that do not make sense to accept. Sometimes the honest advice is that foreclosure protects you better than a short sale on bad terms. Some of our clients have walked away from a short sale offer entirely and taken the foreclosure instead, fully protected under California's non recourse rules, and stayed in their home for years afterward while the process played out.
If you have a second loan, especially if it is a recourse loan, this needs its own review no matter which light applies to your first loan. A release from your first lender does not protect you from a second lienholder who has not separately agreed to release you, sometimes called a "sold out junior" situation. This is one of the most common ways sellers end up owing money they thought was forgiven.
Your Realtor Handles the Sale. We Handle the Risk.
This is not our opinion. It is written into the same Short Sale Listing Addendum (C.A.R. Form SSLA) every California short sale seller signs.
That form states, in the section on your continuing liability, that you are encouraged to get a written agreement from your lender addressing whether and to what extent you are released from liability, and have that agreement reviewed by an attorney, CPA, or other professional. It also states plainly, in its section on broker role, that a real estate broker cannot give legal or tax advice, and cannot even suggest what course of action is best for you.
A good short sale realtor negotiates price, timeline, and buyer terms. That is what their license covers, and you need one. What their license does not cover, by the form's own terms, is evaluating whether your approval letter properly protects you from tax and deficiency exposure. That is ours.
What We Review
- Whether your loan is recourse or non recourse under California law
- Whether the approval letter properly documents debt forgiveness
- Whether a second lienholder has separately released its own deficiency. Section 580e only protects the deficiency owed to the lender who consented to the sale, not automatically the second
- What terms are still worth negotiating, including credit reporting, timeline, and relocation assistance where applicable
We work alongside your existing realtor, not instead of them. If you do not have one yet, we can also handle the listing.
Your Next Step
Three steps. No pressure. No obligation until you decide to engage us.
Request your free review.
We assess your loan type and paperwork.
If you engage us, we negotiate the terms and review your final approval letter before you sign.
Get Your Free Short Sale Review
Tell us a little about your situation. This starts an initial conversation about your loan, your approval letter, and the risks you may not have been told about. It does not commit you to a paid engagement.
Please do not include Social Security numbers, full loan account numbers, or sensitive documents. Submitting this request does not by itself establish an attorney client relationship.