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I'm not sure if the bankruptcy did or did not include her mortgage, but I do know that at some point in the past year or two her mortgage was renegotiated to drastically reduce her monthly payment (whether that was as part of the bankruptcy or not I do not know) by giving her a 40 year mortgage I believe.

It might be taxable in 2014, but if this happens, it will probably happen this year (as soon as next month, even). You do raise an interesting point, though:

At one point in the past few days I know she thought about trying to rent the place out for a year just to give her some extra time to sort out how to get rid of it and to give her a backup plan (moving back) if things don't work out up here. However, if she does that, then your potential tax scenario comes into play. She would still be eligible for SSDI, so that's not my concern, but the deficiency might be taxable. Additionally, her rent in her HUD apartment is based on a calculation of her income, and the rent she receives might count towards that and raise her rent. This is definitely something worth looking into.

Also, to CCinOC- would you mind explaining the idea of "short sale incentive"? I'm afraid I'm missing it.
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