Hardship Withdraw - property taxes

[mehmgo]

Have a plan that allows hardship withdraws for safe harbor standard reasons. If a participant pays their mortgage payment and property taxes separately and they have received a foreclosure notice for the back mortgage they owe. If they sent in back up for the past mortgage payments, this would satisfy the hardship requirements to prevent foreclosure. If they also sent in a property tax bill they owe would the property tax bill be eligible to be include with the hardship withdraw under the safe harbor reasons?

Thanks for your responses

[masteff]

My opinion in prior threads about past due mortgages is there must be an element (such as a warning letter or notice) which now makes the risk of foreclosure or eviction imminent. You're looking for verbage to effect of "if you fail to pay this, we can and will start proceedings against you" (just be sure to ignore "polite" words like "please" and "thank you" if the other words are sufficiently threatening; courtesy does not make a demand any less of a demand).

What I sometimes suggest in the case of deliquent mortgages is to call the lender and request a demand letter. If the past due tax bill in your hand is not sufficiently demanding, you might decide to have the participant call the tax authority and request a demand letter which specifies the penalty of failing to pay.

[mehmgo]

we have received a foreclosure notice for the missed mortgage payments from the lender stating if not paid they could lose their home. I was wondering if the tax bill portion would qualify for the hardship since it is paid outside the mortgage payments.

[masteff]

Yes, I understood you were talking about the tax bill. Please reread my answer above.

Edit: I suppose I didn't explicitly answer your question... the reg mentions both eviction and foreclosure. A mortgage goes hand in hand with a foreclosure. Whereas an eviction can result from many other causes, such as unpaid rent, tax debts, builders' liens, etc. To prevent either eviction or foreclosure, it's my opinion that it must be reasonably eminent and foreseeable from a currently exisiting fact pattern (ie, generally something must be unpaid and some form of past due notice with verbage about the consequences must have been received).

[Lou S.]

Yes, I understood you were talking about the tax bill. Please reread my answer above.

Edit: I suppose I didn't explicitly answer your question... the reg mentions both eviction and foreclosure. A mortgage goes hand in hand with a foreclosure. Whereas an eviction can result from many other causes, such as unpaid rent, tax debts, builders' liens, etc. To prevent either eviction or foreclosure, it's my opinion that it must be reasonably eminent and foreseeable from a currently exisiting fact pattern (ie, generally something must be unpaid and some form of past due notice with verbage about the consequences must have been received).

I'm not sure I agree with that. If you don't pay your property taxes, states will start forclosure proceedings. If you don't have any other means to pay the property taxes, why do they need to be past due with associated penalties and interest for you to qualify for a hardship?

[masteff]

Because the reg says "to prevent" eviction or foreclosure. If the taxes are due in the future, there is no eviction to prevent. You need the cause before you can have an effect; you have to be past due before you can have a threat of eviction. It is unfortunate but in my opinion unavoidable that the person might be forced as you note to incur penalties and interest.

From reg 1.401(k)-1: "Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence"

Edit:

Of course we've proved on here a few times that people have varying standards on how strict to be hardships, so you should listen closely to your own personal and professional judgement.