As I discussed in my prior blog post, and this article, last September’s REMIC regulations left servicers, lenders and borrowers in a quandary over the effect the new “principally secured by real estate test” would have on troubled multi-property loans with release features. The new rules, in some cases, could have resulted in adverse tax consequences to REMIC containing loans with underlying real estate collateral that had fallen below a 125% ltv. Yesterday, the IRS announced Revenue Procedure 2010-30 which, at first read, provides some relief. The new Rev Proc elucidates the circumstances under which certain modifications will be deemed not to fail the principally-secured test. Specifically, loan modifications that relate either to a “grandfathered qualified mortgage” (generally, a modification effected pursuant to the terms of loan documents executed prior to December 6, 2010) or a “qualified pay-down transaction” (generally, a release of a lien in exchange for a principal pay-down of a qualifying amount) won’t result in the IRS asserting a REMIC challenge. Apparently, someone at Treasury recognized the conundrum the new rules created in lien-release scenarios – more information and analysis on the new rules will be forthcoming.
