1099A and Fraud

[BOB W]

I have a situation where my client purchased property and took out a mortgage on it. This was to be a quick flip. As it turns out the seller was a disbarred attorney who was filing fraudulent deeds and then selling the unoccupied property (usually of a deceased owner).

When the true owner’s beneficiary saw what happened, the Police/DA was contacted. Needless to say, my client was stripped of ownership but was left with the mortgage unpaid. My client did not pay the mortgage once that happened.

Now he received a 1099A for the unpaid mortgage. The fraudulent seller was arrested and put in jail. Now, how do I put these issues together? Do we have a Forgiveness of Debt? Do we have a theft? Do we have both? Finally, how do I report this on his tax return?

To date there has been no monatary relief to my client from any source, other than a 1099A.

[joanmcq]

Title insurance?

[BOB W]

That was my first comment but the notory was involved in the scam as well. This took the Title company off the hook.

[BOB W]

I just did a search over previous posts and noted that 1099A are not to be included in income, only 1099Cs. And that the abandoned property is considered a sale at the mortgage debt amount. I will report the sale on 4797. Going futher, a 1099C could still be issued if and when the mortgage company writes off the debt causing a forgiveness of debt.