Good questions flu. Nothing dumb or ignorant about them from where I sit.
I am not an accountant but I believe the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Check with your accountant!!!
I think the limit is 2M.
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So if all things are equal and there is not a taxable event it seems to me it then does boil down to which act will hurt your credit worthiness more in the future. To be perfectly honest I am simply not expert enough to give you a good answer on that one.
In both cases, the short sale verses the foreclosure you essentially can live for free.
Anyways, it is hard to select when talking about other intangibles. I rented out my crown point condo to someone who lost her home to foreclosure. Have not had any problems at all. I am not sure if other landlords would give the not to a tenant that lost the home to foreclosure verses a short sale.
Again though, the bigger question is what hammers the credit rating harder.
