Hardship - prevent foreclosure

[austin3515]

Is the "need to prevent foreclosure" defined anywhere. For example, must eviction actually be threatened by the lending institution? Or is a simple, "you're two months past due" notice sufficient? Is there any published guidance anywhere?

[Lori Friedman]

I've never found expanded definitions for any of the deemed hardship situations -- medical care, education, eviction, foreclosure, funeral, etc. There's better guidance for what constitutes the overall principle of "hardship". You might want to read Reg. Sec. 1.401(k)-1(d)(1), and there are some good examples at Reg. Sec. 1.401(k)-1(d)(2). After you've determined that a participant does, indeed, have a hardship situation, you can usually apply the subset.

[masteff]

My preference was always a letter or something from the lender which explained the consequences of not bringing the mortgage current. So even if it didn't say "we're starting foreclosure", if it said "you're past due... here are the consequences" then I'd take it. My experience is mortgage companies are more than happy to fax letters to past due borrowers if it helps them get paid faster. Just ask the participant to call the lender to request a past due letter. The lender's form letter should have enough to give adequate documentation.

[BG5150]

In my past life of providing "excellent customer service" for plan sponsors, we [my company] required something from the landlord or mortgage company indicating an eviction or forclosure would happen or is happening unless X$ past due were paid. Then a hardship could be taken for up to the amount on the letter and no more; but the amount could be grossed up to include taxes and the 10% penalty tax for early withdrawal.