When you with confronted with unfamiliar questions such as this, it helps to take a step back and dissect the transaction into pieces you actually need to deal with.

Once you get under the surface, there are actually three related but distinct pieces:

1. Cancelled debt;
2. Foreign currency gain/loss; and
3. Gain/loss from the sale of the property.

These gains and losses, although related, cannot offset one another.  Whether losses incurred are deductible would depend on whether this is a personal or business/investment property.