Harriet you are not totally correct. That exemption only applies on your PRIMARY RESIDENCE. So if you were an investor during the housing boom years and you let several properties go into foreclosure you can face several scenerios. 1)You will receive a 1099 from your lender for the difference between the loan balance and what the lender sold the property(s) for. So if the difference is $100K for each property..you will OWE taxes on the 100K for each property...2)That balance can be placed on your credit as a judgement until paid off. Some lenders are requiring homeowners to SIGN a note saying they will make monthly payment on the balance owed fi the home sale is a short sale 3) If your primary residence DOES NOT HAVE FLORIDA HOMESTEAD you can have a deficency judgement placed on your primary residence from the investment properties that go into foreclosure. The lender then can go to court and FORCE a sale of the primary residence property if they decide that equity is present enough to pay off the amount owed. If you think that lenders are not doing this you are wrong. I have already come across lenders like CITI Bank that are doing this right now. I just thought that your readers should understand how that exemption works and what they can face.

Thanks for your comments. I was going to expand on what's covered in a story for tomorrow's paper. Then the bailout bill failed and you know what's happened on Wall Street this afternoon.

I had no idea what tactics the lenders are using. Your comments are very, very interesting. They are playing rough.

Anna
As far as I am concerned, investors and not homeowners caused most of the mess we are in ...flipping houses, as well as using subprime and no doc loans in far great frequency than primary residence homeowners it is difficult to feel sorry that the are will not have this tax benefit....they were investors and not homeowners after all, and taxes should always been part of their equation