Because if it were passive, I was wondering if I could use our carryover passive activity loss from our real estate rentals (we do active participation but cannot use the PAL against regular income due to income limit). 

(The bank is not going to just sell it at a loss to the first person who talked to the seller - they want it exposed to the market to get maximum value out of the sale).That being said, both of the above options are a real pain to deal with, and the odds are extremely long that the bank will sell to you at a significant discount.Here in Florida (even after #2 is complete), the short sale addendum to our contract allows the bank up to 90 days to review an offer.So, what typically happens is:1.

Investors often show losses on paper, while actually making money through cash flow.

"Washington Mutual could face $26 billion in losses, with $21 billion from mortgages, a report from Lehman Brothers said on Monday.

In addition, the interior is a hideous shade of yellow that's so pale your eye can't really tell at first if you're looking at a yellow wall or a white wall.

Loss Mitigation and a Legal Department.

Most claims aren't total losses, so if the house is in a depresssed market and sells for say $40k and has a fire in the kitchen...could easily be $20k in (retail) repairs and they're getting premiums on $40k, the math doesn't work like it normally would. 

Now I've been told that I can write off many of my expenses, but since I have not generated income yet would those be considered a loss I assume? 

Even if I just break even or have very little cash flow, as long as it's not a loss it's effective . 

The thinking is, that although they are taking a loss on the note, something is better than nothing.