Defieciency's depend on state law and if deficiency judgments are allowed then it comes down to investor or insurers guidelines. Without knowing what state the home is in, who the investor or insurer is, and borrower financials, it's hard to give you a better answer.
Borrower will get a 1099 if the debt is settled. The question is if they are liable to pay on it. This depends on insolvency and many other factors which if they have concerns they should consult a CPA.