I need confirmation on this scenario:

We hold a 2nd lien on a property; the 1st lien holder forecloses and bids on the property. We do not cancel the outstanding debt till 3 year later, thus 1099C is not required yet.

Question:
In Box 2 (Balance of Principal Outstanding) of 1099A we enter the amount owed to us, not the total owed to to the 1st lien holder and to us, correct?

Thank you in advance!

Why would you be filing a 1099A? You never took possesion of the property.

Randy, I guess that is where my confusion comes from. In the instructions for 1099A, IRS states:

"File Form 1099-A, Acquisition or Abandonment of Secured Property, for each borrower if you lend money in connection with your trade or business and, in full or partial satisfaction of the debt, you acquire an interest in property that is security for the debt, or you have reason to know that the property has been abandoned. You need not be in the business of lending money to be subject to this reporting requirement."

"An abandonment occurs when the objective facts and circumstances indicate that the borrower intended to and has permanently discarded the property from use. You have “reason to know” of an abandonment based on all the facts and circumstances concerning the status of the property. You will be deemed to know all the information that would have been discovered through a reasonable inquiry when, in the ordinary course of business, you become aware or should become aware of circumstances indicating that the property has been abandoned. If you expect to commence a foreclosure, execution, or similar sale within 3 months of the date you had reason to know that the property was abandoned, reporting is required as of the date you acquire an interest in the property or a third party purchases the property at such sale. If you expect to but do not commence such action within 3 months, the reporting requirement arises at the end of the 3-month period."


The way I am reading the definition of abandonment, we must file the 1099A, even if we were not the ones conducting the sale; if not for the rest of the paragraph which seems to focus on the foreclosing entity's duty, the duty to report arises, at the very latest, when "a third party purchases the property at such sale".

Am I misreading this?