Cosi, first me, Mott or anybody else on here, are usually Realtors, NOT lawyers or CPA's, please verify all info with the latter 2.
Mott, no disrespect, but it may be rare for them to go after them now, but I believe they have up to 5 years to file the deficiency judgment, which gives them plenty of time to handle the wave of short sales and then concentrate on the judgments, unless of course you get it in writitng. Also, not all situations will qualify to have no 1099 issued. Again, no disrespect. As far your statement "get all the answers you need from the negotiator and/or loss mitigation department of the lender" I agree, but I will add, you need to make sure you get EVERYTHING in writing.
Cosi, feel free to contact me so that we can try to get you on the right path, with the least damage. I have mitigators and lawyers, plus others on my team. with years of experience in these situations. If you choose to go another way, I STRONGLY recommend you to speak with a lawyer and CPA in regards to, but not limited to, the legal, financial, credit, implications associated with what you are trying to execute. Good luck