What happens to the money ‘forgiven’ by the lien holder(s) of the Short Sale?
When the lender decides to forgive all or a portion of a borrower’s debt and accept less, the forgiven amount is considered as income for the borrower and is liable to be taxed. However, after the signing of The Mortgage Forgiveness Debt Relief Act of 2007 by President Bush, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences so consultation with a tax advisor is necessary ensure that a borrower qualifies.
