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New IRS Regulations Expand Flexibility to Servicers to Modify Mortgages |
October 15, 2009
Previously published on October 2009
On September 15, 2009, the IRS issued final regulations on the modifications to commercial mortgage loans in Real Estate Mortgage Investment Conduits (REMICs). The final regulations will affect borrower, lenders, servicers and arranger/sponsors of securitized commercial loans included in REMICs. The final regulations provide for the expansion of permitted exceptions to the general rule under Section 1.1001-3, Treasury Regulations that restricts significant modifications to qualified mortgages held by the REMIC. A significant modification to a mortgage loan included in a REMIC could lead to the disqualification of the REMIC's tax status, treatment of a transaction as a prohibited transaction and the imposition of a 100% tax on the REMIC's net income from a prohibited transaction. Prior to the passing of the final regulations, changes to the terms of mortgage loans were permitted exceptions to the significant modification rule if such change was occasioned by default or a reasonably foreseeable default. The final regulations expand the permitted exceptions to provide more flexibility to servicers who are faced with the decision to modify the qualified mortgages to limit or avoid a default or reasonably foreseeable default by a borrower. The final regulations also provide guidance for when a release of a lien on real property securing a qualified mortgage would not disqualify such mortgage.
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The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance. |
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