If you are faced with foreclosure, the bank or mortgage company may allow you to do a short sale. In a short sale, you would sell the house for a lesser price than your mortgage. For example, if you owe $100,000 on your mortgage and you sell the house for $75,000 that is a short sale. What happens to the $25,000 difference? The bank may issue you a 1099 for the $25,000 debt forgiveness you received. Check with the bank to see how they handle the debt forgiveness. Keep in mind that you will need to keep the bank informed as to almost every step involving the short sale. And, the bank has to agree to the short sale.
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