IRS Removes an Obstacle to Modify Securitized Commercial Loans

This just came from my buddy, Dave Tornell at IPX1031:

On September 16, 2009, the IRS issued Revenue Procedure 2009-45 in an attempt to remove one of the obstacles to modifying securitized commercial loans that are not currently in default but are likely to go into default before their maturity. Revenue Procedure 2009-45 provides a procedure that allows Real Estate Mortgage Investment Conduits (REMICs) to modify loans that are at risk of default without triggering tax penalties.

Previously, REMICs and investment trusts could only modify a loan currently in default (or an imminent default); otherwise it might be subject to a 100% "prohibited transactions" tax. Accordingly, borrowers with currently performing loans and pending maturity dates had difficulty getting the loan modified or extended to avoid a future default.

While this does not increase the amount of commercial capital available, it may assist borrowers to talk to their servicers about restructuring the loan before the point of default. Some commentators see it as a positive step toward easing today's liquidity crisis in commercial real estate. Real Estate Roundtable President and CEO, Jeffery DeBoer recently stated (while speaking about Revenue Procedure 2009-45) "reducing loan defaults and associated property devaluations will help prevent further shocks to the fragile economic recovery, protect investors large and small, and protect communities around the country that rely heavily on commercial property tax assessments for their operating revenue."

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