If you purchased a home as a short sale, the 1099-C should have been sent to the prior owner, meaning you assumed the reduced mortgage amount at the closing. If the mortgage company gave you a lower mortgage value after the assumption took place at closing, and you agreed to the debt reduction, then the debt forgiveness would be yours. This is a very unusual turn of events, since it means you would have agreed to assume the mortgage at the balance due amount at time of closing, and then the company offered to reduce it for you afterwards. It's difficult to see why they would have done that if you were already obligated to pay the assumed balance. You really need to discuss this with the mortgage lender who sent you the 1099-C.
