You are right about a 1099, but you might be liable for capital gains tax on a nonrecourse loan. The clients that I am working with are planning to see a CPA next week, so after they meet with him/her I’ll hear more about it, and get all the juicy details 🙂 I’m not sure if that congress bill address capital gains tax after foreclosure, I know it addresses the debt forgiveness tax from short sales/foreclosure.