Among many other federal tax provisions expiring after December 31, 2012, is the exclusion for cancellation of debt for a principal residence.
For details, see my article, “Tax Consequences of a Short Sale or Real Estate v. Foreclosure” http://www.realestateinvestingtax.com/shortsale.shtml
Since only about a third of the year remains, now may be the time to take action to secure the benefit of the exclusion. You have more control over a short sale (assuming you can find a buyer). With a foreclosure, you are at the mercy of the lender for when it happens.
Write your representatives in Congress to ask them to extend this exclusion. Too many people are still suffering from the real estate crash, even though there is news of prices starting to recover.