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The foreclosure itself - reportable on 1099-A - http://www.irs.gov/pub/irs-pdf/f1099a.pdf should be treated as disposition of the property at fair market value.
The short sale as you referred - the sale for less than the debt outstanding that is secured by the property - reportable on 1099-S - http://www.irs.gov/pub/irs-pdf/f1099s.pdf - should be treated as disposition of the property at the sale price.
The amount of debt forgiven reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf
These transactions are not directly connected with the debt forgiveness. Generally - the bank may try to collect the money unless you file for the bankruptcy protection. The person may sell short and still assume the debt.
However if the debt is forgiven - generally it is taxable, unless an insolvency exemption apply -- you should file a form 982 - to proof your insolvency - and might exclude all or part of canceled debt from taxable income.
Please see the IRS Publication 908 Bankruptcy Tax Guide - http://www.irs.gov/pub/irs-pdf/p908.pdf - with example of the form 982 on the last page.
Please be advised that you have only 6 month after tax return is due to file 982 form.
In additional - the Mortgage Forgiveness Debt Relief Act of 2007 signed at the end of the last year provides additional relief - http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 that allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
The Act applies to qualified debt forgiven in 2007, 2008 or 2009 - and only to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.
You still need to file the form 982 to claim exclusion.