Question: How are all these rich people with assets doing short sales? Are they responsible for the differerence in what its sold for and whats owed? Will the bank forgive the debt to some of these wealthy people who have assets?
Answer: Actually when a property is upside down , there's a couple of ways to sell the property.
1) The seller pays the difference outright or transfers the debt to another asset for security. The bank gets all their money or at least something else to attach as security for the difference.
2) Short Sale - The seller does not have to pay the difference to transfer the title. This type of sale is subject to the bank approving it and they are taking less than what the seller owes. Whether the bank forgives the debt or not is another thing. They may require the seller to sign a note for part or all of the deficiency before they release title or they may even go after a deficiency judgement if the seller doesn't get a release. The bank will also report the loss to the IRS and the seller can be taxed on the deficiency, though the government is temporarily not taxing forgiven debt on a primary residence but this doesn't help at all on vacation homes or investment property. Short sales also mess up your credit like a foreclosure does so nobody but the bank and the buyer wins.
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