Principal Residence

[Guest Donell]

I have a participant who rented out his principal residence while he was in Alabama (I believe for tornado relief). He's now living temporarily in an apartment and plans to move back into his home in a couple of months. He's received a foreclosure notice on his home. Can he make a claim on his home if he is not currently living there but plans to move back in a couple of months?

[GBurns]

What sort of claim do you mean?

[Guest Donell]

What sort of claim do you mean?

It's a 401(k) hardship claim

[masteff]

The reg says: "(4) Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence;"

My initial opinion is he cannot take the hardship until the day he moves back in. In which case he needs to stall the mortgage company for time.

How long was he in Alabama (are we talking weeks, months, years)? And is the house currently occupied by a renter?

[Guest Donell]

The reg says: "(4) Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence;"

My initial opinion is he cannot take the hardship until the day he moves back in. In which case he needs to stall the mortgage company for time.

How long was he in Alabama (are we talking weeks, months, years)? And is the house currently occupied by a renter?

Don't know how long he was in Alabama, probably months if he rented out his home. Don't know if his house is currently occupied by the renter. I'll need to find that out.

[Guest Donell]

The reg says: "(4) Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence;"

My initial opinion is he cannot take the hardship until the day he moves back in. In which case he needs to stall the mortgage company for time.

How long was he in Alabama (are we talking weeks, months, years)? And is the house currently occupied by a renter?

Don't know how long he was in Alabama, probably months if he rented out his home. Don't know if his house is currently occupied by the renter. I'll need to find that out.

He was in Alabama for 2 months for the tornado relief effort. His home is still occupied by a renter who has not paid the rent, therefore he's fallen behind on his payments. He plans moving back into the home in April.

[masteff]

The renter makes it tricky but the short duration (in my opinion) weighs in his favor. If we look at some of the code and regs discussed in this thread: http://benefitslink.com/boards/index.php?showtopic=38818 then we might choose to consider reg section 1.121-1©(2)(i) which says: "(i) In establishing whether a taxpayer has satisfied the 2-year use requirement, occupancy of the residence is required. However, short temporary absences, such as for vacation or other seasonal absence (although accompanied with rental of the residence), are counted as periods of use." {emphasis added}

If you are willing to make the slight stretch of using Sec 121 for guidance (which has been suggested by other persons on this board as well as myself), then I believe you could permit the withdrawal.

One thing I didn't think to ask is what term of lease did the current renter sign and has the owner given notice to the renter to vacate? My thought being that toward the point of a "short temporary absence", you need to document that the current rental situation is ending soon.

That said... the conservative position is to say he can't have the withdrawal until the day the renter has vacated and the owner reestablishes a right to reside in the home.