Posted by John Corey on May 27, 2006 at 06:56:44:
Brian,
What you want and what the law says might be two different things here.
The tax will be on the amount of the loan forgiven. Hence it will be a lot less to pay than what the seller owes. A small bill being better than a large bill.
If they get hit with a foreclosure on their file it will be a bigger problem in most cases than an IRS bill (assuming that IRS bill does not turn into a tax lien).
Take a look at the article Stew referenced. There is good info there.
At some level you are trying to help. You just can not help fix all the problem as a short sale investor. At some point the chips land where they land and the seller needs to recognize that getting out of the loan has a price attached (the need to move, the credit dings up to this point, the tax on the debt forgiven - somewhat similar to the loss of equity if they had equity in the property).
John Corey