The Mortgage Debt Relief Act runs out this year. This means that sellers considering doing a short sale should start now in order to avoid closing next year because if they close next year the 1099 that the lender will send them will cause them to have to pay Federal and State income taxes on the amount that the lender lost as ordinary income. This protection has nothing to do with gains it is the lenders loss that you will be paying taxes on.
So make sure that if you are on the fence about whether or not to start a short sale you are aware of this. See links below for the State of California and the IRS documents on this law which was enacted in 2007 and ends this year, December 31st 2012.
Follow this link for more info on Los Angeles Short SalesPosted by Ben Nicolas on