I think I read that the main concern with the short sale is that the seller is still responsible for paying taxes on the money the bank forgave them. Right? The bank basicaly lets the seller off the hook for some amount of money. But, the seller is still liable for the taxes on that, which could be substantial.
Exerpt-
“Be aware the I.R.S. will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim”
“Now if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.”