We are talking apples and oranges here, See. If there is no forgiveness of debt, there is no taxable event in the eyes of the IRS, and state law determines whether or not there is forgiveness of debt.
The law in California (and it varies state-to-state) is that a lender can not go after a borrower per se on a purchase-money loan since the real property is the sole collateral for the loan, so in the event of foreclosure, the lender eats the loss, the borrowers' credit is dinged, and the IRS considers the amount defaulted upon as 'forgiveness of debt', a taxable event for the borrower.
However, in the case of a foreclosure involving a refinanced mortgage, California law gives the lender the right to bring a Deficit Judgment against the borrower for any losses the lender sustains, and thus the borrower is still on-the-hook for the money.
While forgiveness of debt is a taxable event in the eyes of the IRS, on a refinance there may be NO forgiveness of debt if the lender obtains a Deficit Judgment against the borrower, and thus no taxable event.
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