If your home is considered residential 1-4 units, then yes, according to CAR legal series you are relieved of debt obligations. However, be aware, that there are many changes happening on the local and national level each month. They are in favor of the homeowner's doing short sales. Make sure you hire a seasoned short sale agent and potentially speak to legal counsel. A good short sale agent will have these resources for you. See below for exact info, part of an on-going series:
II. Effect on Borrowers of Short Sales
Q 8. Is the seller in a short sale relieved of all debt obligations owed to the lender?
A In general, as long as the property is a residential 1 to 4, then yes a seller in a short sale will be relieved of all debt obligations owed to the lender (see series 4).
However, for all other types of property the answer is more nuanced. Each lender is different, but some have borrowers sign a short sale agreement that releases the lien on the property without cancelling the promissory note. This allows a short sale of the property to proceed while at least potentially leaving the borrower responsible for any deficiencies on the loan. While there are no cases directly on point yet, it would appear that the anti-deficiencies statute that protects borrowers in foreclosures (Cal. Code Civ. Proc. § 580d.) do not apply when the property is sold as in a short sale.
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