Short Sale?

As far I know, short sale in real estate occurs when the outstanding loans and liens against a property are greater than the proceeds from the sale of the home, after all closing costs are paid. This occurs only when a home owner meets the qualifications, and the home owners lenders agree to allow a short sale. In the event of a short sale, a lender can release you free from the property, and fully forgive you of any deficiency! why would people agree to do a deed-in-lieu of foreclosure when a short sale might be a better option for them? Just because it release debts not mean it has no troubles, example IRS When on the short sale when "Cancellations of Debts" are present. "If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. IRS is usually required to report the amount of the canceled debt which for they it is considered an income."

Here’s a very simplified example. You borrow $200,000 and default on the loan after paying back $70,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $130,000, which generally is taxable income to you. Next Year you have to declare that you won 130,000 as a result, you will have to pay taxes for it.