You have raised two major issues of concern in regard to any short sale: one is whether the lender will consider the sale proceeds to be payment in full and forgive any additional debt which may still be owing. This is a decision that can be made by your short sale lender and should be put in writing within the short sale approval letter.
The other issue is in regard to income tax liability for forgiven debt. In some cases you will have a tax liability and in some cases you will not. Your lender cannot answer your question about taxes and neither can I. Neither can your Realtor unless that person is also a trained tax professional. You must take you documentation to a tax professional for an opinion about tax liability.
In regard to the $35,000 payment that is being offered by the short sale lender. Get it in writing! I have heard of payments of that amount in some short sales recently. Would it be taxable income? Ask the tax expert, not the lender or a Realtor.
Burden of proof is on the shoulders of your Realtor and you. Get it in WRITING!.
This should be very simple to resolve.
You are wise to be very careful, I would not cash that check until I had this throughly checked out. As the other realtors said have your realtor check it out, I have never heard of something like this I believe it is a mistake, and would proceed accordingly.
At your service,
Congrats for getting the deficiency taken care of in negotiations!Dot Chance, RealtorÂ®
Certified Distressed Property Expert CDPEÂ®
DRE License #01494182
Keller Williams Realty World Media Center
http://www.DotChance.com and http://www.SummerBreakatHanalei.com