Good afternoon,

I'm sorry to hear of the situation.

The simple fact is that the IRS lein is secondary to the first mortgage. If a short sale is approved, the IRS will generally release the lien so that you can get the sale done. They know that in a short sale you will not be getting any money, and they can not take money from what is already owed the lender.

The HOA lien is NOT superior to the lender's lien and the lender can igniore the lien.

How in the world you ever ended up with an EDD lien is beyond me---you must have had an overpayment. Getting this lien released may be the toughest. There is no law to force them to release the lien, and the lander simply doesn;t want the headache with the liens on the property. Seriously though, the lender has nothing to worry about, they ate just being difficult. In this case, you might seriously give up the idea of the short sale and go straight for the strategic foreclosure.

In a strategic foreclosure, you cease making payments on the mortgage and taxes---and bank the money they save during the 6 to 12 month average time it takes the lender to decide to begin foreclosure and when the property is sold at the foreclosure auction for use in relocating.

After the foreclosure is completed, the lender will auction the house. The lender can do one of a couple of things then.

The lender can seek a court judgment against you for the difference between the loan amount and the amount of sale at auction (deficiency). With the judgment, they can attempt to collect money from you; they can garnish your wages or levy on your bank account.

The lender, however, often will not bother to do this though because the collection rate on deficiency judgments are usually not very good --in fact statistically, the collection rates are dismal.

The lender may instead choose, and often does choose, to write the debt off for tax purposes. If they do that, they will send you a 1099 tax form and the loss the lender took (the difference between the loan amount and the amount of sale at auction).

If the property foreclosed on, or which you short sold, was your primary residence, and the 1099 you receive is for the tax years 2007 through 2012, then you will not have to report the amount on the 1099 form as income for tax purposes.

If the property foreclosed on, or short sold, was not your primary residence, you may have to pay taxes on the amount written off. HOWEVER, if you can show that you were insolvent at the time of the foreclosure---that your debts, including the house, exceeded your assets, then the IRS will not force you to pay any taxes on the amount that the lender writes off.

If you were not fully insolvent at the time of the foreclosure---as an example you had $10,000 more in assets than in debts, then while the lender may 1099 you for $100,000, you would only have to pay taxes on the amount that you were above the insolvent level----you would pay income taxes on just $10,000.00.

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I wish you the best in 2012.

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Thank you,

DougLawTalk41042.7772910069

Good morning,

So long as the Deed in Lieu includes the agreement that the lender will not seek a deficiency judgment, then the Deed in Lieu is far superior to a short sale, which as you have learned is extremely difficult.

You will have to disclose to the IRS that the lender is giving you money---and they will want part of the money as well. Seriously, I think that you are wasting your time trying to push the short sale through.

Even though the IRS will eventually allow the short sale it is a lot more complicated then just making a call to them. Government red tape!

In California there is a presumption that a deed in lieu of foreclosure will release the seller from financial liability for the underlying notes or loans. However, some lenders like to include in their deed in lieu documents a right to foreclose. Be sure to determine if your lender reserves the right to do this---as you are better of foregoing the deed in lieu and just forcing the foreclosure if they won't cooperate.

I hope that you found my answer informative, that you are accepting of my efforts and that you will rate my efforts based on the knowledge I have provided to you.

I wish you the best in 2012.

Thank you.

Doug