UPDATE: President Obama signed an extension of the Act until the end of 2016.
Although, Congress often allows tax breaks to expire only to retroactively allow them, there is no guarantee that will happen in this case. Homeowners need to be aware that they may suffer another injustice on top of foreclosure- A huge tax bill. Although declaring insolvency may be an out, typically the IRS definition of insolvency is different than your own. As a result of this tax break expiration analysts expect fewer short sales and fewer loan modifications. Why would a borrower agree to a short sale if that means they are just going to get a huge tax bill?
If you are in foreclosure, this is certainly an item to keep an eye on. Currently there are proposals to extend the mortgage debt forgiveness through 2017; however, as of the publication of this article, nothing has passed Congress.