The Law: Effective January 1, 2025, California Assembly Bill 2424 (Civil Code § 2924) mandates:

“A foreclosure sale shall be postponed for at least 45 days if the borrower provides a valid listing agreement to the trustee at least five business days before the scheduled sale date… If a purchase agreement is subsequently provided, the sale must be postponed for at least another 45 days.”

The Explanation: In 2026, you have a statutory right to up to 90 days of “breathing room” to sell your home at market value. This is triggered by listing your property on a major MLS (like CRMLS). However, stopping a Trustee is not a simple administrative task; it is high-stakes. Trustees have been known in the past to ignore requests or claim paperwork was “incomplete” to proceed with the auctions.

Q: Will I have to pay taxes on the debt forgiven in my short sale?

Short Sale : You will likely receive a Form 1099-C (Cancellation of Debt). Federal law requires lenders to report forgiven debt over $600 to the IRS. The IRS has stated in a letter to CA Sen. Boxer that ” if a property owner cannot be held personally liable for the difference between the loan balance and the sales price, we would consider the obligation a nonrecourse obligation. In this situation, the owner would not treat the cancelled debt as income. Instead, the owner must report the entire amount of the nonrecourse debt as an amount realized on the sale of the property. If the owner realizes a gain on the sale of the property, the owner generally must include the gain in gross income (Section 61(a)(3) of the Code). However, if the property was the owner’s principal residence, the owner may qualify to exclude all or part of the gain from income (Section 121 of the Code). See the IRS letter here at UpsideDownRealEstate.com

Foreclosure: In general CCP § 580d prohibits a lender from collecting a deficiency after a Trustee’s Sale, the IRS typically views the transaction as turning that debt into non-recourse debt. This means you report a capital gain/loss instead of ordinary cancellation of debt income just like a short sale see https://www.irs.gov/pub/irs-pdf/p4681.pdf

Attorney Note. Fewer than half of Realtor Negotiated short sales result in a sale. CCP 580e is a very good loan workout strategy for some sellers. However, you should always create a backup plan.

The Answer with Respect to Your Assets: When deciding between a short sale and a foreclosure on a property with only one loan, most people assume the short sale is the “honorable” route because it involves active negotiation with the bank. Legally, however, a non-judicial foreclosure on a single loan residential property is often the cleaner “exit” because CCP § 580d provides a bar against any deficiency judgment with the borrower having to turn over a picture of their assets. A well executed short sale under CCP § 580e offers similar anti-deficiency protection, however it comes with a dangerous caveat for those with significant assets, high income or those who may have overstated that income to get the original loan. Banks typically require a “hardship” to approve a short sale, and if a realtor advises you to “fudge” your financial statements or hide assets to meet these requirements, you are walking into a trap. Under CCP § 580e c, if you commit fraud to secure a short sale, you lose your statutory protection, and the bank can recover their damages. This essentially re-opens you to the very deficiency liability you were trying to avoid.

There is a third path: for high asset upside down owners or those who do not wish to give the lender a road map to their assets, It is possible to negotiate a short sale or a deed-in-lieu without providing a financial disclosure or a traditional hardship package. This almost always requires an an attorney who can get the file escalated out of the lenders loss mitigation department and into the lenders or legal department.

The Answer with Respect to Credit : On paper, both a short sale and a foreclosure can generally remain on your credit report for up to seven years. However, a short sales impact on your credit depends less on the “event” and more on your lender. While a foreclosure usually triggers a mandatory waiting period of 5 to 7 years, short sale outcomes are highly variable. We have seen clients who were able to buy a new home within just two years, while others were forced to wait the five-seven years. The “damage” isn’t just a number; it is a reflection of multiple factors and a lender’s reaction to it.

The 3-Year Silence Rule: A Deep Dive into CC § 2924.13

The “3-Year Silence Rule” is a specific provision within the newly enacted Civil Code § 2924.13. It states:

“The mortgage servicer did not provide the borrower with any written communication regarding the loan secured by the mortgage for at least three years.” — CIV § 2924.13(b)(1)

This rule is a game-changer for homeowners trapped by “zombie loans”—old second mortgages that have been dormant for years only to resurface when the home gains equity.

Why It Is Important to Homeowners

1. Stopping the Foreclosure Clock The most immediate benefit is defensive. A lender cannot even threaten a nonjudicial foreclosure until they record a Certification under Penalty of Perjury regarding their communication history. If they have been silent for three years, that certification becomes a “confession” that they engaged in an unlawful practice. This gives you the right to an automatic injunction to halt any sale.

2. Evidence for a Quiet Title Action The 3-year silence is more than a procedural hurdle; it may be seen as a signal of “lender behavior” that can be used as evidence in a Quiet Title action. In a Quiet Title lawsuit, you are asking a Superior Court judge to rule that the lien be removed from your title. The Result: If the judge removes the lien from you property the debt is officially gone and this may instantly free up $50,000, $100,000, or more in home equity.

3. Leverage in a “Disputed Debt” Negotiation Even if you don’t go all the way to a final judgment, the threat of a Quiet Title action backed by § 2924.13 gives you leverage. It turns a “zombie” lender from a position of power to potentially one of weakness. It is possible you could settle for “cents on the dollar”.

What is the ‘Certification’ a lender has to file? Before foreclosing, the lender must record a document under penalty of perjury stating they haven’t been silent for 3 years. If they lie, they risk perjury. If they tell the truth, they admit to an “unlawful practice.” Either way, the homeowner wins a significant advantage.

4. The reason to act now is that lenders are currently challenging this law in California courts. It might be a good idea to act while this law is still provides grounds for a quiet title action.

The Answer:

The Law: California Code of Civil Procedure § 580e states:

“No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness…”

The Explanation: In plain English, this means that if you (an individual or couple ) own a 1–4 unit home and your lender consents in writing to a short sale, they are legally obligated to accept the sale proceeds as full payment. They “should” not come after you for the difference later, and they should not force you to sign a new promissory note as a condition of the sale.

The Attorney Warning: “While the law is clear, the paperwork is often deceptive. Lenders, especially those based out-of-state, frequently insert clauses into their approval letters that attempt to preserve a ‘right to collect’ or demand ‘additional compensation’ in violation of CCP 580e(b).

As a Broker-Attorney (Bar # 154852), I would agree with the CA Assoc of Realtors Short Sale Addendum which states… Seller is encouraged to have the Lenders Short Sale Approval Letter reviewed by a CA licensed real estate and tax attorney.