A creditor is required to issue a 1099-A when a borrower abandons real or personal property. According to the IRS 1099-A instructions, "An abandonment occurs when the objective facts and circumstances indicate that the borrower intended to and has permanently discarded the property from use."
A 1099-A is not a notice of forgiveness. It is unclear to me what the purpose of a 1099-A is, other than to alert the IRS that at some point in the future the entity reporting the borrower's abandonment it may issue a 1099-C.
If the financial institution issues a 1099-C to you, then it has forgiven the debt and you must report the amount on the 1099-C as income. Fortunately, the Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude income from the discharge of debt on their principal residence. It includes the cancellation of the complete debt, or if the mortgage terms were renegotiated.
If the financial institution issues a 1099-C to you, it will probably not pursue you for the deficiency balance because it has deducted the loss on the loan from its taxes. However, there is no guarantee the financial institution will not pursue you for the deficiency balance and then later amend its tax returns. However, such a chain of events is unlikely.
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