Legal Question in Real Estate Law in Georgia

You're really asking this at the wrong time. You should explore your options long before you pick one.

Short sales are often a very bad idea. They can have tax consequences (and that is one reason to see a lawyer BEFORE you start - see below for possible good news), and, depending on what deal is cut, you may be left with very negative reporting on your credit for 7 years if you have any past late paymenst and don't work removal of that into the deal.

Additionally, there CAN be a deficiency after a short sale, unless you structure the paperwork to avoid that, and if that is the case, you have eliminated the entire benefit of a short sale.

Finally, banks are notorious for stringing people along and then vetoing the short sale right before closing.

There are times when other options may be better tax, credit or financially. Those may include bankruptcy, a deed in lieu, or other choices.

But asking AFTER the bank and buyers have reached an agreement is exactly the wrong time as you need legal advice in advance to protect yourself.

A few words about tax consequences: Congress passed the "Mortgage Forgiveness Debt Relief Act of 2007." The legislation was effective for discharges of indebtedness on or after January 1, 2007 and before January 1, 2010. The Federal Bailout Legislation H.R. 1424, passed on October 3, 2008, extended this relief through December 31, 2012. Under the new law, a discharge of "qualified principal residence indebtedness" is excluded from taxable income. "Qualified principal residence indebtedness" is acquisition indebtedness secured by the principal residence of a taxpayer as defined for the deduction of residential mortgage interest, but the limit is $2,000,000 for the exclusion ($1,000,000 for the mortgage interest deduction) and $1,000,000 for married persons filing a separate return ($500,000 for the mortgage interest deduction). Also, the exclusion only applies to a mortgage secured by the principal residence of the taxpayer. The election to exclude the income from discharge of principal residence indebtedness is made on Form 982.

A properly done short sale may possibly avoid tax consequences. Because of the recent debates in Washington it is very possible that we may see more changes in tax laws that could affect short sales.