REO & Short Sale Sellers
By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.
Diamond Real Estate Group lists and sells distressed property in Sonoma County and the North Bay for two kinds of seller: homeowners who owe more than their home is worth and need a short sale, and lenders, asset managers and private-money lenders selling homes they’ve taken back. The goals overlap, a clean sale at the best price the market will pay, but the process is different for each. This page explains both, starting with homeowners.
For homeowners: is a short sale right for you?
A short sale is a sale for less than you owe, with your lender’s written approval. It can make sense if you can’t keep up with payments, the home is worth less than the loan, and a loan modification or repayment plan isn’t realistic. It lets you sell on a planned date instead of losing the home at auction.
Before deciding, talk to your servicer about every alternative, and to a free HUD-approved housing counselor, listed by the CFPB along with the HOPE Hotline, (888) 995-4673. If the home is worth more than you owe, you don’t need a short sale at all: a regular sale before the foreclosure date can pay off the loan and leave you the equity.
| Option | What happens | Worth knowing |
|---|---|---|
| Loan modification or repayment plan | You keep the home on new or catch-up terms | Needs enough income; California bans upfront fees for modification services (Civil Code §2944.7) |
| Regular sale | You sell and pay off the loan | Only works if there’s enough equity to cover the loan and selling costs |
| Short sale | You sell for less than you owe, with lender approval | Takes time; protects you from a deficiency on a 1-4 unit home when the lender consents in writing |
| Deed in lieu of foreclosure | You give the home to the lender | The lender has to agree; usually requires a clean title |
| Foreclosure | The trustee sells the home at auction | The least control over timing and outcome |
To see where you are in the timeline, read the California foreclosure process. To understand the trade-offs, read how a short sale compares with foreclosure and REO.
Will you owe anything after a short sale?
For a home of one to four units, California’s Code of Civil Procedure §580e says no deficiency is owed when the lender consents to the short sale in writing and the sale proceeds go to the lender as agreed. The lender can’t demand extra payment as a condition of consent, and the protection can’t be waived. It doesn’t apply if the borrower is a corporation, LLC or limited partnership, and it doesn’t protect against fraud or damage to the property.
Taxes are a separate issue. The federal exclusion for forgiven mortgage debt on a principal residence doesn’t apply to debt discharged after December 31, 2025, according to IRS Publication 4681. Whether a short sale creates taxable income depends on the type of loan and your finances, so talk to a tax adviser before you sign the approval.
How we handle a short sale
- Review your situation: the loan balances, any second mortgage or liens, the sale date if one is set, and the likely market value.
- Price the home from comparable sales so the lender’s own valuation is likely to support it.
- Prepare the lender package with you: hardship letter, financial statements, tax returns, bank statements and the listing agreement.
- Market the home and present offers, explaining the approval process to buyers so they stay in the deal.
- Negotiate with each lienholder, keeping the foreclosing lender informed so a pending sale isn’t overtaken by the auction date.
- Close within the approval’s deadline, with the deficiency terms in writing.
We keep you informed at each step, but we can’t promise that a lender will approve a short sale or postpone a foreclosure; only the lender can. The detailed process is in our California short sale guide and our notes on negotiating with lenders. If you’re comparing agents for a short sale, our page on client reviews explains how to check any agent’s reviews and license, including ours.
For lenders, asset managers and private-money lenders: REO listing services
Institutions that take back property need a broker who can value it accurately, protect it while it’s vacant, market it well and report clearly. Matthew Martinez provides broker price opinions and REO listing services for lenders and asset managers in the North Bay.
- Valuation. Broker price opinions with interior and exterior condition notes, repair estimates and an as-is and as-repaired value. See BPOs and REO valuation.
- Occupancy and possession. Occupancy checks and coordination with counsel on notices. California requires 90 days’ written notice for tenants after foreclosure, and fixed-term leases often survive (Code of Civil Procedure §1161b).
- Preservation. Securing, winterizing and maintaining the exterior. California fines owners of vacant foreclosed homes up to $2,000 a day for exterior neglect after notice, rising to $5,000 a day after 30 days (Civil Code §2929.3). See REO property preservation.
- Marketing and offers. MLS exposure, pricing strategy, offer summaries and recommendations, and management of the bank’s addenda and deadlines.
- Reporting. Regular status reports through the asset manager’s platform or by email.
From January 1, 2027, the post-auction bidding rules for 1-4 unit homes change under AB 1957, which removes prospective owner-occupants as eligible bidders and limits the process to first-lien sales. Our foreclosure process guide summarizes the changes. The full operating framework is in REO asset management.
Why the North Bay needs local REO knowledge
Values in Sonoma, Napa and Marin vary sharply over short distances: a few miles can mean a different fire hazard zone, a septic system instead of sewer, or a well instead of public water. A valuation that misses those details misprices the asset. Local knowledge also matters for preservation, from rural properties with wells and septic systems to homes in higher fire hazard zones where defensible-space work affects insurance and buyers.
Questions sellers ask
How long does a short sale take?
Often several months, depending on the lender, the number of liens and how complete the file is. Starting before a sale date is set gives you the most room.
Does a short sale stop foreclosure?
Not by itself. The lender decides whether to postpone the sale, so the short sale file has to move quickly and keep the lender informed.
Do I pay a commission on a short sale?
Usually the commission is paid from the sale proceeds as part of the lender’s approval, so it doesn’t come out of your pocket at closing. The lender decides what it will allow.
Can you list REO for private-money lenders as well as banks?
Yes. Private lenders who take back property often need the same valuation, preservation and marketing support as institutions, sometimes faster.
Need to talk through your options? Contact Matthew confidentially. Buyers of these properties should read our buyer’s guide to REOs and short sales.
Sources & notes
- CFPB: what is a short sale?; IRS Publication 4681
- Code of Civil Procedure §580e; Civil Code §2944.7; Code of Civil Procedure §1161b; Civil Code §2929.3
We can’t promise lender approval or the outcome of any foreclosure. This is general information, not legal or tax advice; talk to an attorney and a tax adviser about your situation. Last reviewed October 2026 by Matthew Martinez.
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