If you own a primary residence and are facing a foreclosure, you will not be issued a 1099 for a taxable event once the property forecloses. The tax laws were recently changed regarding this matter. This law does not apply for second homes or investment property. If you foreclose on a second home or rental property, you will have a deficiency judgment to contend with as well as a taxable event for your personal income tax.
If you are facing a foreclosure on a primary residence, this is probably the best time to do it. Not that facing a foreclosure is a fun thing to deal with, but in terms of the tax laws it has never been a better time to do it. You can get a clean start and not have to worry about a taxable event to pay for.
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