In a nutshell a short sale is when the home is being sold for less than what is owed to the lender and the seller can not pay for the difference. Although the seller may agree to a sales price all terms and conditions must be approved by the lender. There's pros and cons but for everyone it is different and a seller should consult a real estate or tax attorney to see how it would affect them. For the buyer it is another opportunity to get a property at a discounted price if the lender agrees but the process is a very long one so you must be patient.... more
The home equity line of credit (HELOC) uses the residence as collateral, so you will need to pay it off or negotiate with that lender. HELOCs are one of the things that cause problems in a short sale because in most cases it is cash loan, meaning that the proceeds from the loan are spent, so if there is foregivness it is treated as income.
Only purchase money or money used for re-habbing the property is part of the mortgage forgiveness act, (see link)... more