Loan for a Principal Residence

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A participant took out a loan for a principal residence and was amortized over 30 years. Due to unforeseen circumstances the property was never used as the principal residence.

IRC 72(p)(2)(B)(ii) states -- Clause (i) shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant.

I interpret this as meaning since the intent at the time the loan was made was truly to purchase a principal residence, this loan is valid and no correction is needed. Anyone else have a different opinion?

[Ron Snyder]

I agree with your reading of the statute. However, I would caution you to have plenty of documentation to establish a credible case for the loan. What evidence did the Plan Administrator require to show that the residence was to be the primary residence of the participant? How was it that the loan went rhough, the purchase went through, but yet the participant didn't relocate to the residence?