Posted by B.L.Renfrow on July 08, 2003 at 24:40:39:
I am no tax expert, but in general, it works like this:
Say a lender is owed $100k. They agree to a short sale for $60k. The $40k difference would be considered taxable income to the borrower and they would receive a 1099 from the lender reflecting that.
Of course, the best recommendation is to advise the borrower/seller to obtain professional advice from their own accountant and/or lawyer.