No, the owner will not have to worry about that. Even though ordinarily debt discharged is taxable, the federal government passed a law that tempoarily provides relief to home owners who opt for short sale. But this law currently exipires on December 31, 2012 but proposal has been made to extend it through 2013. Also note that it applies to principal residence only. There's also a proposal to extend this law to rentals but it is not yet in effect.