Unless Congress acts to extend the Mortgage Debt Relief Act of 2007, that is correct. Currently this act allows income from the discharge of mortgage debt on a principal residence to be excluded from taxation. This provision is due to expire at the end of 2012. If the act is not extended the amount of debt forgiven through a short sale or loan modification on a primary residence may once again be taxed as income.
Here is a link to an article on the IRS website that explains provisions of the Mortgage Debt Relief Act of 2007:
Also Publication 4681 gives more detailed information on the tax implications of debt forgiveness:
If you find this answer informative be sure to vote for it with the arrow on the left.