If this person insists on a short sale, theirs no guarantee the bank will accept it and they may very well be taxed on the short amount.  Should they accept this offer, they will be able to deduct the loss and other expenses.

They may listen to an attorney that is well versed in real estate short sales.

It seems clear to everyone that that walking away losing $5000 makes so much more fiscal sense than trying to do a short sale, that may or may not even go through. Once you look at the costs and being 1099'ed for any debt that was written down, its clear that there really aren't any benifits.

I find that lenders are not forgiving the debt like they used to. Depending on value received this could be extremely beneficial to get out clean you might say. It's subject to a lot of factors but at average home prices the tax burden could easily exceed $5,000 by itself.  

Please forgive my ignorance here as I'm not a realtor.  But, do you mean that their net is only $5000 short AFTER realtor and/or any other fees are paid off?

If the answer to above is yes, it SEEMS to be that they would be better off taking that offer vs. continuing to pay to mortgage for many many months. But, I may be completely misunderstanding.

I guess I would ask the question why?  They might be a valid financial reason. E.g. they don't have the money to pay the $5000 + realtor fees + capital gains.  I don't know as I don't fully understand the situation.

Bob "RealMan" Timm ~ you can lead a horse to water, but getting them to drink it a whole different story... Wow, I wish I could give you a better answer, but I got nothing other than what I stated

Advise them to have an attorney negotiate that part of the transaction on their dime!

What about the third party approval?

Sometimes we just leave it to God....

 Bob,

I shall make a dangerous assumption and believe that the price point of homes in Minot ND is well below $100,000. If this is true, and the seller can not 'see the light' you must consider the reality. This is a business, not a hobby. 

Good business choices, for homes of proper value, would include collaborative efforts to make the $5,000 dissappear. Such effort makes a significant difference in the assurance of closing element most owner find of great value.

Your job Bob, is to bring a solution that makes business sense to you and solves a problem for the buyer and seller.

The seller simply may not have the funds to get to settlement even thought it is only $5,000. It is really smart for the buyer to walk away with only a $5,000 difference?

Not something that I have felt worthy of my time.