Prior to your short sale, obtain tax and legal advice.

Under the Mortgage Forgiveness Debt Relief Act of 2007, homeowners will not be subject to income tax if the mortgage proceeds were used to buy or improve the homeowners' primary residence. The homeowner is not protected by the Act if the mortgage debt was for a business, vacation home, investment property or if the mortgage was used to pay off credit card balances. If a homeowner is not covered by the Act, insolvency may provide some form of protection. Please see IRS Publication 908 and IRS tax form 982 at irs.gov.

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