>Forgive the difference between the sale price and mortgage value. This becomes taxable income to the owners so frequently they take out a new loan for the difference and pay it over time. This is probably the best option since it avoids bankruptcy and the interest rate is considerably less than the tax rate
That is, if they pay it in a year - the tax rate applies only once, interest is permanently calculated for the duration of the debt. Of course, one would have to calculate carefully. Sometimes it's better to be charged tax on the virtual money, if other income is low (if it were high they wouldn't be in this stew) than to be actually returning the virtual money with interest. It all depends on the actual rates, the actual taxes that would be paid etc etc.