Legal Question in Credit and Debt Law in New York

Re: Urgent-how can I ask that the debt from a short sale be forgiven?

A short sale happens when your mortgage lender agrees to release its lien on property when it hasn�t been paid in full.

Who does a short sale benefit? You may not be the major beneficiary.

� The lender gets most of its money without having to spend the time and go through the expense of a foreclosure.

� The person buying your house gets a deal�a lower price then the debt on the property.

� And, perhaps most important, short sales have been latched upon by many Realtors as a way of generating income when the housing market is in the dumps, since they earn commissions on the (lower) purchase price. Be sure to look at who benefits from the short sale: in many cases, it�s everyone but you.

This is because unless the lender agrees, a short sale doesn�t eliminate your obligations under the mortgage, it merely releases the lien from the property. If you do not negotiate otherwise and your state law allows it, you may remain liable for any deficiency that results from the ultimate sale of the property.

A short sale will seriously damage your credit probably the same as a foreclosure, and the same as a bankruptcy.

Finally, many lenders will issue a 1099-C for any forgiven debt resulting from the short sale. Unless you qualify and file special forms with the IRS and state taxing authorities, you can owe taxes on this forgiven amount. The lender can also agree not to file a 1099-C as part of the negotiations over the short sale.

You should negotiate to have the all lenders agree to accept the short sale as payment in full, agree not to issue a 1099-C, and agree not to file a negative credit report as part of the transaction.