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Can a NFS mounted file system be used for encrypted /home, and can the encrypted Home Directories be mounted/decrypted for the user when they login?

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The home directory encryption - at least the one in ubuntu - works for any folder. It does not matter if that folder exists on the local hard disk or is mounted using NFS. It even works in combination with the Ubuntu One cloud storage.

Just mount the directory first and then configure the encryption.

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