Once you have listed your property, start looking for another place to live.
There are federal laws that will prohibit a lender from coming after the property, and the IRS will not 1099 you for the difference.
This is the smartest thing you can do right now.
The laws differ from State to State and there is no pat answer for this question. Getting the advice from the correct professionals is absolutely imperative.
Don't depend on the lender's loss mitigation department to tell you all of the facts. They are not legal experts!
I recommend a couple of steps:
First, I would not talk with the lender first. If your parent needs to sell as a short sale, then he will want to minimize his financial situation.
If he opts to try to negotiate a loan modification, he'll have to qualify for the loan full doc, just as if he was buying the property.
So the FIRST STEP is to talk with a Realtor that has some experience with these matters. Ask friends, family members, or if you like I would be happy to refer you to a expert in your area.
The key thing here is that time is of the essence. These steps should be taken immediately as home values are declining.
Best of luck to you.
The government waived the income tax rule that was in place, where the home owners who had to sell as a short where sent a 1099 for the difference in loan amount as income. I'm not sure if they will still waive that next year. As for the other creditors, that has nothing to do with the short sale unless you are talking about a 2nd or 3rd loan on the property, overdue property taxes and past due HOA's. Those are all part of the short sale agreement.
Hope this helps. I'd be happy to talk with you more about this. Please feel free to contact me anytime via email or phone.
Mary Morris, Realtor
California Real Estate Services
Should he ask for a short sale? There is no pre-approval process for a short sale in most cases. In order for most lenders to consider a short sale they need to see a few things.
1. A financial hardship backed up with bank statements, proof of income,and a financial worksheet
2. A broker price opinion showing the home is worth less than what is owed
3. A contract with a pre-approved buyer
As to the question oweing the creditors; a good short sale agent should help limit that exposure so they won't deplete his 401K