SHORT SALES AND FORECLOSURES A Short Sale is a situation in which a seller owes more money on the loan (and any other liens on the property) than a sale will produce and is unable or unwilling to bring money to closing. In a Short Sale the lender has not yet foreclosed on the property, which provides a window of opportunity for the owner to sell the property in order to at least partially satisfy the amount owed to the lender. Short Sales are preferable to foreclosure because they lessen the impact a foreclosure can have on the surrounding community and won’t damage the distressed owners credit as much as a foreclosure. Not every owner is a Short Sale candidate. If a Short Sale is considered the qualifying process will determine if the homeowner has a valid hardship. Will the Seller have to pay income tax on any forgiven debt?The Mortgage Debt Relief and Emergency Economic Stabilization Act of 2008 allows taxpayers to exclude federal income tax on the forgiven debt amount on their principal residence if the loan balance was less than $2 million through 2012.