Legal Question in Real Estate Law in California

First, in most cases the person no longer "owes" the bank $200k. The bank cannot usually sue the former owner of the home - there are exception - but if the home was sold at a trustee sale, as most are, that's almost always the end of the story on that loan.

Second, the IRS has new rules where, at least for a while, many people don't have to pay taxes on the uncollectible ("forgiven") part of their foreclosed loans. Usually, this applies to a house that was your principal residence. People who are having foreclosures on investment property and second homes that they didn't live in usually still get 1099-C forms and have to pay tax on the unrepaid part.

You should have a personal visit with an IRS tax advisor at a nearby IRS office to see if your situation is exempt from the tax.