According to C.A.R. starting January 1, 2011, a seller's first trust deed lender cannot obtain a deficiency judgment against the seller after a short sale. This only pertains to the purchase money loan for the property. The Governor just vetoed the bill that would have extended California's anti-deficiency protection laws to cover re-finance loans. What this means is that if you have refinanced your home and are considering a short sale or going through one, and the amount collected on the short sale is less than the amount of the re-financed loan, you could be subject to a deficiency judgments for the balance. However, since every persons situation is different, and every lender may have different requirements, be sure you check with your financial advisor and accountant first. We are not tax advisors and do not give tax advice but call us if we can be of further assistance.