It is my experience you need to protect yourself with a clause in your contract that says contract subject to acceptance by mortgage company without deficiency judgment . you will still be w-4d or 1099'd by the mortgage company and unfortunately the only way my clients have avoided that is to file bankruptcy and named irs as a creditor. I have had 2nd trust holders sell the note for the reduced payoff but have not been able to get 1st mortgage holders to do so. Now that the treasury has announced they will not be buying the banks bad notes they may be more willing to bargain again. remember, just because you lost this round does not mean you can not come back again!
You need to be asking these questions from your attorney or tax person, or both. We as real estate brokers are prohibited from answering questions like these because they are construed as the un-licensed practice of law.