A couple of follow-up comments:
- The No Deficiency provision essentially provides the distinction between a recourse and a nonrecourse debt. Since you indicate that the no deficiency provision restricts you from looking to the borrower for any shortfall, the debt is nonrecourse.
- I agree that this is clearly a non-business bad debt.
- While you are not required to file a form 1099-C, you are certainly not precluded from filing one.
- The IRS released a Service Center Advice 1998-020 that stated even if you are not an entity described in IRC Section 6050P that is required to issued form 1099-C, you may voluntarily file such form. You clearly have an identifiable event; sale of the property, receipt of the proceeds which is less than the debt and the no deficiency clause.
- Keep in mind that filing form 1099-C will have tax consequences to the borrower and may impair your relationship to the borrower who you indicate is a relative and possibly other relatives.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
