In a short sale, it’s a pretty common question to ask whether or not, Do Short Sales With Freddie Mac Result in A Deficiency Judgement? Luckily for us there’s a clear definition already out there for this.
Chapter 55.3.1: IRS Form 1099-C, Cancellation of Debt (04/25/06) states that the Servicer must report cancellations of Borrowers’ mortgage debt on IRS Form 1099-C, Cancellation of Debt, as required by the Internal Revenue Code. Under 55.3.1.d .6 it defines a short sale (not by name) as “A discharge of indebtedness under an agreement with the debtor to cancel the debt at less than full consideration.
Most of the time you want to get it in writing and possibly reviewed by an attorney but this is pretty clear that a short sale completely cancels the debt. The way it’s worded above, it’s worth pointing out that your credit report often reports a short sale this way as well.