2nd Lien investment - property in foreclosure

[Audrey C.]

Unfortunately, I got into a situation with a colleague that I have invested with before, lending him money and receiving a favorable return.  Well his development projecct this time, is in foreclosure with the hard money lender.  Mine is the 2nd lien and will be wiped off soon.  I will bite the bullet but would love to know how this whole amount could be considered as a tax write off against my regular income on Schedule E (?), and lowering my overall taxes?  Can someone who has had this bad experience or even someone who knows the tax laws help me out please?  Thanks in advance!!