I owner financed a property to a buyer in 2010.
Last year they gave ma a deed in lieu of foreclosure as they were unable to pay.
My question is:
- Do I need to send out any 1099’s to the buyer? (1009s, 1099c, 1099a??)
- What do I need to submit to uncle sam? same 1099?
A lender only sends a 1099 when the home is upside down and the borrower benefited financially from forgiveness of the unpaid balance from a foreclosure and subsequent sale.
Probable in this case the seller (Lender) benefited as you received a down payment, received payments for some period of time and the property taxes and insurance was paid and covered by the buyer during their period of ownership.
By excepting deed in lieu you have summarily excepted the property back as an equal or better financial position than you and the property were in at the time of sale. If the property had been upside down you could have denied a deed in lieu of foreclosure request and simply foreclosed on the property.
Had a foreclosure occurred and subsequent sale for less than was owed on the original agreement then the buyer would have benefited financially from forgiveness on the loan and would receive a 1099 for that difference.
With deed in lieu of foreclosure there was no forgiveness as you excepted the property back, no foreclosure and sale occurred and no unpaid balance was forgiven, thus no 1099!!
Someone mentioned to me that I would need to file a 1099-S (Proceeds From a real Estate Transaction) , since a Deed in Lieu is considered a sale/transfer or property. Can you comment?
A 1099S is required if you sold a property which did not go through escrow / title and did not have a HUD1 completed and filed.
So if you buy a home for $300 dollars at a tax auction for example and you sell this home by quit claim deed to Bill who pays you $1,300 dollars you are then required to fill out form 1099S, since your transaction was not handled by a licensed Title / Escrow company who filled out and filed a HUD1 for you.
This is the IRS alternative to RESPA and the HUD1.
Receiving the property back does not denote a profit as you will have to carry it, pay realtor fees and closing costs. You may need to maintain it, keep utilities on and manage the property.
Only when a new sale occurs do you realize a new profit. At that time if you don’t use a Title / Escrow company who prepares and files the HUD1, you will then need to prepare and file a 1099S for profits you receive.
Thanks again GR - good info.
The fog is clearing. if only the IRS can explain this stuff as you did.
I now understand the the situations where 1099-c and 1099-s needs to be filed.
How about 1099-A? Would you have any insight on this one?