Legal Question in Real Estate Law in California

Re: Deed in Lieu

Your question presumes that the 1099 has to do with the lender's profit and therefore its tax liability. Rather, you get the 1099 because you are considered to have made a profit. When you borrow money and the repayment is forgiven either by the lender itself or by operation of law, the difference between what you got and what you repaid is treated as income to you under our tax codes. So the lender must issue you a 1099 for the principal you didn't repay. I would suggest seeing a tax advisor to discuss whether you may have offsetting losses, such as a capital loss on the disposition of the property, and whether and how this can be deducted ("written off") and possibly this may offset the 1099 income, at least in part. I do not give tax advice except to refer people to those who do when they seem to need it.