When doing the short sale with the lender the shortage does not just go away.
Depending on the lender they will determine if you will get a 1099-C or that you get a deficiency judgment against you.
A 1099-C is an income form for the shortage that you will have to claim as income since it is a debt that they are forgiving.
A deficiency judgment is when they put a lien on you to eventually pay the difference. This can also mean you may need to liquidate another property to pay the shortage back.
This all depends on the lender and what the shortage amount will be.
All cases are treated differently and cooperating with the lender is the key factor.
Also keep in mind they have the final decision on what is going to take place on selling this home and closing out the mortgage.
