short sale taxes

[John Reid]

My partner came upon a possible short sale deal today totally out of the blue. Found a homeowner who has received an eviction notice after living a house for 4 years. Said his monthly payments went from $500 to $900 a month and that he couldn't make it. I bet he accepted some sort of teaser rate with a 3 year ARM--something like that. He has to be out in less than a week. We explained what a short sale was and that we might be willing to look into talking to his lender to buy the property for less than what he owes. My question concerns tax on the difference between what is owed on the mortgage and what the lender will accept. I did a search on this site and found some information from a couple of years ago. Based on what I read it seems that there was some legislation passed that said that the difference would no longer be taxed which keeps the homeowner from being socked with a nasty surprise. Is this still the case? Those of you who have been doing short sales in the current housing crisis--any information on this? Any good references I could look up on-line? Thanks everyone!