Contributing a property to LLC with deveoper triggering a 1099?

[Geoffrey O'Brian]

Hey all.
I'm in California and am contributing my property to an LLC. Single member at first (me), then multi-member. There's a managing member who is the developer. We plan to build on my lot and my neighbor's lot.
The developer started an escrow to contribute my property and to leverage it to get a bridge loan to buy my neighbor's property. That was okay with me, but now escrow is telling me the "sale" of my property to the LLC will produce a 1099 to the IRS, showing the current market value. Developer says that can be "backed out of my taxes," which may be the case, but I still think I should try to avoid a 1099, right?  Or is it inevitable if I contribute my property to the LLC?
How do I contribute an encumbered property ($340K loan) to the LLC, let the LLC pay off my loan, but not trigger a 1099?
Thanks,
Geoff