Hypothetical Equity Line/Short Sale Question?
If someone is potentially facing a short sale but still has 30k left on an equity line, would it be possible for that person to use the 30k to pay off student loans and other debts with the equity line if they know they are already facing a short sale or foreclosure? Due to the Mortgage Forgiveness Debt Relief Act that was just enacted, a person would no longer have to pay tax on the debt forgiveness, so therefore the additional money used from the equity line would not be taxed. Would it be smart to pay off student loans with this money if you already knew you would lose the house?
Please no mean answers, I’m asking hypothetically if it would be possible to use this $$ without penalty.
I think that the short sale approach assumes the debt is otherwise satisfied and that other liens (HELOC) are not existing. The original holder would accept the short sale, the holder of the second (the HELOC) would want their money back.
