While California's housing market struggles to come back from the dead, many homeowners are finding themselves with very few options. In an effort to avoid personal bankruptcy, and after unsuccessfully trying to sell their homes, they negotiate with the lenders and decide to do a short sale. Many people end up selling for hundreds of thousands less than what they owe on the home.
No one likes to admit they are deeply in debt, and maybe so deep that creditors are getting serious about their collection efforts. In some professions credit troubles can literally end a career, especially in regulated and sensitive industries. People wresting with staggering debt loads or personal bankruptcy have to consider what might happen if their employer finds out. The time to deal with the problem is before the wage garnishment paperwork arrives, not after.
Since the recession began several years ago, many homeowners have had difficulty making mortgage payments. Foreclosure rates have increased and left many California homes empty. Usually, if a bank provides debt relief to a homeowner through a foreclosure or a short sale, the homeowner must pay income taxes on the amount of debt forgiven.