Jim Chad Posted June 28, 2012 Posted June 28, 2012 A new twist for me. A Plan is Safe harbor for Hardship. An employee wants to move. He has an FHA loan on the house he is trying to sell. To get a FHA loan on the house he wants to buy now, he needs to pay off the old FHA loan. Can he take a hardship dist to pay off old loan and enough for a new downpayment?
ETA Consulting LLC Posted June 28, 2012 Posted June 28, 2012 That's a stretch. It's not preventing eviction or foreclosure and, based on your fact pattern, it's not for the purchase of the new home (but to merely payoff the old one). I wouldn't do it. Good Luck! CPC, QPA, QKA, TGPC, ERPA
Guest GeerTom Posted June 28, 2012 Posted June 28, 2012 Would the proceeds of sale of the old house be used to help pay for the new one? If so, the payoff should be considered to be for the purchase of the new one. If a sanction for having the two loans out includes a possible foreclosure on the first, there's an argument that it is to prevent eviction. But this (1) is unlikely, and (2) goes way beyond what an administrator is supposed to do. Lawyers review mortgage documents, not plan administrators. If he's keeping both, not likely to be permitted.
MoJo Posted June 29, 2012 Posted June 29, 2012 Would the proceeds of sale of the old house be used to help pay for the new one? If so, the payoff should be considered to be for the purchase of the new one. If a sanction for having the two loans out includes a possible foreclosure on the first, there's an argument that it is to prevent eviction. But this (1) is unlikely, and (2) goes way beyond what an administrator is supposed to do. Lawyers review mortgage documents, not plan administrators. If he's keeping both, not likely to be permitted. I think you have a "tracing" problem. Paying off the old loan is independent of the purchase of a new home regardless of the issues surrounding financing of the new home. I think the money has to be clearly traceable to the purchase. If the guy never (can't) sell the old house, then the funds never get applied to the purchase of the new house. I wouldn't do it. As an alternative, use the hardship to put more money down on the new house and borrow less, then when the old house sells, either use the proceeds to pay of the debt, or go back to the bank and refinance.
masteff Posted June 29, 2012 Posted June 29, 2012 No. The reg says "( 2 ) Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments)" That "(excluding mortgage payments)" is what explicity disallows this for me; you cannot take a hardship to pay down an existing mortgage. And frankly, why can't the participant make the purchase of the new house contingent on the sale of the old house? This is how many people do it. Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
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