http://www.edzollars.com/ForeclosureDebtandTaxes.pdf
Briefly, for recourse acquisition debt, the lesser of the amount of the debt or the FMV (fair market value) is the selling price. The "seller" has exchanged the property for the debt and, if the property wasn't worth the amount of the debt, the difference would be COD (cancellation of debt) income.
For non-recourse acquisition debt the selling price is the amount of the debt, regardless of the FMV of the property. There is no COD income because the "seller" was not liable beyond the amount of the debt.
Debt borrowed based on the equity of the house do not qualify for relief.
