If the mortgagee forgives a portion of what was due, they'll issue an IRS form 1099 to the Seller representing the amount of forgiven debt as INCOME. The IRS views forgiven debt as taxable income... so your Sellers will have an exposure to a liability to pay tax. However, if the Sellers are insolvent at the time the debt was forgiven, the income may be exempt from taxation.
In the majority of cases, the sellers do not incur taxes. However, they'll have to prepare, and prove their case. Not a big deal.
The answer is, it depends...
If the mortgagee forgives a portion of what was due, they'll issue an IRS form 1099 to the Seller representing the amount of forgiven debt as INCOME. The IRS views forgiven debt as taxable income... so your Sellers will have an exposure to a liability to pay tax. However, if the Sellers are insolvent at the time the debt was forgiven, the income may be exempt from taxation.
In the majority of cases, the sellers do not incur taxes. However, they'll have to prepare, and prove their case. Not a big deal.