As lenders are more and more motivated to sell the property (rather than foreclose one), I have been engaged with quite lot of short-sale transaction helping my clients purchase properties at significant discount.
However, what I have found is that, since most of sellers and seller's agents, do not understand how short sales works, I ended up doing negotiation with lenders by preparing necessary paper works. This is time consuming but I realized huge opportunity in short sales.
Anyway, especially for seller, it is quite important to understand how short sales works in terms of tax and unpaid debt amount.
Here is the article from Wall Street Journal about "A Short Sale May Not Mean You're Home Free." This article features that many short-sale sellers are hit outstanding debt lien after the short sales. If you owe $150K and sell property for $100K having lender each $50K, the lender often press lien against you for unpaid $50K. This is particularly true if your home is refinanced or is investment property. It is important that you do your best to have your lender agree on Deed in Lieu and have them forgive the remaining debt.
The below article about tax ramification when your remaining debt is forgiven. In this case, the lenders are required by the law to file DDI (Debt Discharge Income) via Form 1099-C to borrower. This means borrower, in IRS' eye, made income at the amount of forgiven debt. If you seller primary residence, DDI is forgiven by tentative relief. But if it is investment or cashed-out-primary residence, DDI is full in force. In this circustance, you have to somehow prove that you are insolvant.
This is down-and-dirty financial and tax tip for short sale seller.
Contact me if you are interested in buying severely discounted property with Short Sales.
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