Mortgage companies, bond issuers and other lenders sometimes must deal with deadbeat borrowers and abandoned properties. The mortgage crisis of 2007-08 caused many homeowners to lose their homes, a condition that is only slowly getting better. For mortgage lenders and those who make secured loans, times have been tough and have led to the assumption of properties that served as collateral. When this occurs, lenders must send copies of Form 1099-A, Acquisition or Abandonment of Secured Property, to the IRS and to the borrower.
Secured Property
The property covered by Form 1099-A is any real, tangible or intangible property that served to secure a loan. A couple of exceptions don’t require filing of the form:
1) Property is located outside of the United States and the borrower is an exempt foreign person.
2) The property is tangible personal property, such as a car, that the borrower didn’t use for business or as an investment.
Sometimes, multiple owners — investment pools, trusts, government units, subsequent holders, etc. — share a loan. In this case, a responsible person, such as a trustee or owner of record, files Form 1099-A on behalf of all the co-lenders.
Do not confuse multiple owners of a single loan with multiple lenders that have extended different loans secured by the same property. For example, if a company mortgages a factory to three different lenders and then defaults on a payment, one or more of the lenders may foreclose on the property. If this happens, all the lenders must file Form 1099-A, because the value of their claims on the collateral is reduced.
Abandoned and Acquired Property
Some borrowers simply walk away from the property they’ve used to secure a loan on which they can no longer make the payments. This is abandoned property and lenders must file Form 1099-A if they become aware of the fact. The IRS expects you to know, or have reason to know, when a borrower abandons a secured property, if the information was available through a reasonable inquiry. The reporting requirement arises no later than three months after learning of the abandonment or upon foreclosing on or selling the property.
Acquisition occurs at the earlier of the date you took title or the date upon which you received the burdens and benefits of ownership. Sometimes, the borrower may object, and if there is an objection period, your acquisition dates from the end of that period. If you buy a secured property sold to satisfy a debt, the acquisition date is the date of sale or the date the borrower’s right to redeem the debt expires, whichever occurs later.
Filling Out Form 1099-A
Here is the information the lender must provide when filling out Form 1099-A:
- Identifying information of lender and borrower, including federal identification numbers
- Account number
- Date of lender’s acquisition or knowledge of abandonment
- Balance of principal outstanding, not including accrued interest or foreclosure costs
- The property’s fair market value, which can be the gross foreclosure bid price or the appraised value
- An indication whether the borrower was personally liable for repaying the debt
- Property description, include the address of real property, the section, lot and block if necessary, or the type, make and model of personal property such as a car, office equipment or abandoned crops that secure a Commodity Credit Corporation loan.
Filing Rules
You must accompany Form 1099-A with a copy of Form 1096, Annual Summary and Transmittal of U.S. Information. If you forgive all or part of the loan, file Form 1099-C, Cancellation of Debt, instead of filing Form 1099-A. File paper copies with the IRS by the end of February and electronic copies by the end of March. File a copy with the borrower by the end of January. To save time and resources, you can use a provider of mail house solutions to print, fold, stuff and mail your returns. If you are a bank or financial institution with many copies of Form 1099-A to complete, consider buying 1099-A software that allows you to enter the information and then create the file, which you can print off or transmit electronically. You can also hire a service provider to take all the work off your hands. The IRS assesses penalties for failure to file Form 1099-A, up to $1.5 million per tax year.
