This is different from what you stated above.

"It is not reported on a 1099-INT since it comes directly from the property owner to the client."
Do you mean the seller is a third party and the loan was extended to the seller instead of the buyer?  How are these loans structured?  What is the collateral?

"Client receives mortgage interest income as an investment...Client has several of these..."
What kind of note or agreement was executed for these?  What are the terms and interest rates charged?  It is starting to sound a bit "funny".