Lease to Purchase

[Guest Donell]

I have a participant that has requested a hardship distribution to purchase the home he is in that he's leased for 3 years. The lease is up the end of March and he wants to purchase the home. He is unable to get a mortgage due to his credit and the lender has agreed to sell him the home if he can pay about $30K to bring the amount owed down to an amount he can afford. There are back taxes that are owed and I know this is not an eligible expense. What does he need to provide in order for this request to be eligible for hardship? Of can he?

[ETA Consulting LLC]

Backtaxes should be considered part of the purchase price (within obvious reason). If you have $40K in backtaxes on a $20K house, then that would clearly undermine the intent of "purchasing a primary residence". But, if $30K would make the purchase happen, then that should qualify. Documentation is key. It has to 'pass the muster'.

Good Luck!

[QDROphile]

The hardship amount should be sent to escrow with appropriate instructions, including self-serving instructions that the amout is to be applied to the purchase. The escrow also provides a basis for taking the funds back into the plan if the deal collapses, and this deal looks uncertain.