If there was consideration for the waiver (the DIL instead of a foreclosure) the deficiency may be excludible, but as to the portion that was canceled, there are special rules especially if there is a bankruptcy, and most likely will be includible. For the tax year in question, plan on having a tax professional prepare your returns.
Cancellation of Indebtedness income is excluded from the taxpayer's gross income if the taxpayer is insolvent at the time the debt is canceled. You shouldn't have to pay tax on this, but I strongly suggest you have your tax return prepared by a certified public accountant.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.