It shows that you are a good person because you care about your clients, you're not just trying to do a tax return. And it shows that your clients are good, honest, hard-working people too, and that's why you are trying to help them. You don't really have to share all the details because the Internet is forever, but many of us are working from home and have nothing better to read.
No, there is no deduction for a loss on a personal residence. Actually, what you should worry about is income from "cancellation of indebtedness" because of a "deed in lieu of foreclosure." The seller, who is obviously a bad person, might send your clients a Form 1099-C if the unpaid balance on the contract was more than what the property was worth when he took it back. "Generally, homeowners using short sales or deeds in lieu are required to pay tax on the amount of the forgiven debt—but not if they qualify for the Qualified Principal Residence Indebtedness (QPRI) exclusion. " You can read more about that here:
https://www.nolo.com/legal-encyclopedia/short-sales-deeds-lieu-foreclosure-30016-2.html
The Evil Investor probably doesn't want to pay someone to prepare a 1099-C and send it to IRS, but if that happens it's very likely that your clients will qualify for relief. Just come back here and ask for help if you need it, then.
