My father will potentially be shortselling/foreclosing on his mortgage soon. He is trying to determine what the reprocussions will be (aside from a huge blemish on his credit report). He does not have many options at this point, he is extremely upside in the loan. He will not qualify for insolvency.

I have a basic but limited understanding of the process and I am trying to figure out what is going on by researching online but I still have a few questions.

Question #1: When he does a short sale with the bank, he would be responsible for taxes on the "Debt Discharge Income" *unless* he qualifies for the Mortgage Forgiveness Debt Relief Act of 2007, correct? (which I read most homeowners DO qualify for). It is his primary residence that has been lived in for the last 10-15 years. Is there any reason they would NOT qualify for the relief act, or I guess I should ask, how do they know for SURE they DO qualify before walking away? They will be walking away from a home they owe $150K + on that is currently only valued at $50-60K. He took out the mortgage on his principal residence (which I believe was already paid off) to do some work and use the money on a secondary residence.

So if he walks away and gets his 1099 from the bank, he can just claim the "income" falls under this relief act, is untaxable, and then is "free and clear" so to speak of for any tax and all repercussions, or are there any others we should be aware of???


Question #2: From what I have read he should qualify for the "Home Gain Exclusion".....so really there two separate programs we're talking about here that he is potentially eligible for, both the "Home gain exclusion" and the "Mortgage Forgiveness Debt Relief Act"....how do they work in conjunction with each other? Do each address different tax repercussions?



Question #3: I keep reading about 1099A and 1099C and am still not 100% clear on the difference. 1099A is the reporting of the status and 1099C is the official cancellation of the debt? Which one does he WANT to get, which one should be hound the bank for? My understanding is that this relief act has only been extended until 2012 but the banks have 3 years to give you a 1099C....so if they sat on it until 2013 you would be liable at that point because the relief act is no longer applicable??

Question #4: His mortgage is through citibank and is "securitized by Fannie Mae." What does that mean exactly, does it mean Fannie Mae "backs" the loan like a co-signor almost if he defaults on the mortgage? Neither of us understand Fannie Mae's role in the mortgage or what it has to do with anything.

I really, really appreciate any help and feedback!