Participant loan secured by real property and deemed distributions

[KJohnson]

Are there any differences in the "deemed distribution" rules in the event of a default where a participant loan is secured by real property instead of an account balance? Would there still be a "deemed distribution" of the loan amount upon default but never a "loan offset" since the account would still include the defaulted mortgage?

[QDROphile]

If the loan is secured by a mortgage, the mortgage should be foreclosed and the proceeds applied to repay the loan. There will be no loan to offset, it has been paid. There will have been a deemed distribution because the payments will have failed to comply with the quarterly payment rule.

If the distribution occurs at about the same time as the default, instead of much later, it may be OK not to foreclose on the mortgage and have an offset distribution, but I note that only as a possiblity to think about.

[KJohnson]

I guess my question is whether you can ever offset if the only security you took was a mortgage and not the account balance? I thought that the whole notion of "offset" was based on executing on the security posted (the account balance) when there has been a distributable event.

If you haven't foreclosed on the mortgage prior to the time of a distributable event, could you then distribute the mortgage "in kind" which would have the same effect as an offset?