Which of the following could be a consequence of a short sale?

• A. A short sale could result in a form 1099 from the lender.
• B. A short sale guarantees the lender will forgive the loan.
• C. A short sale eliminates all tax liabilities.
• D. A short sale guarantees a deficiency judgement.

Answer: (A)

A short sale can trigger a Form 1099 from the lender because when debt is canceled as part of the sale, the forgiven amount is treated as cancellation of debt for IRS purposes. Lenders typically report this to the IRS on Form 1099-C, so the borrower may face tax consequences on the forgiven balance unless an exclusion applies. This is a plausible and common outcome of a short sale. The other statements aren’t guaranteed: forgiveness isn’t automatic, so the debt may remain partially or fully outstanding; canceled debt often creates taxable income, so tax liabilities aren’t automatically eliminated; and whether a deficiency judgment is pursued isn’t guaranteed—lenders may waive it or may pursue collection depending on the loan terms and circumstances.