So the borrower is told by some fast talking loss mitigation company that "we can get the lender to not send you out a 1099-c for the remaining balance written off" or "if the lender does not send the 1099-c you don't have to report it to the IRS". HELLO, if the short sale property, foreclosure or Deed in Lieu property does not qualify for the Mortgage Debt Forgiveness Act i.e. investment property in most cases, you still have to report forgiven debt EVEN if you do not receive a 1099-c. Look at it this way: The IRS considers; right or wrong, forgiven debt as income. If you go work part time and make $20,000 from your friend and your friend does not report the $20,000 to the IRS do you still have taxable income? YES.
Read the IRS rules on Forgiven Debt. Read about IRS form 982. Ask your accountant. Do your own investigation into what really happens with your situation. Hire a Realtor and one CDPE trained.