hardship reason

[K2retire]

A participant is being told that his house will be sold on the courthouse steps for back taxes unless they are paid by a specific date. It's not exactly a foreclosure or eviction, although the result is the same. How do others feel about this as safe harbor hardship reason?

[ETA Consulting LLC]

It sounds like an eviction to me. Property taxes are automatically a first lien holder and subordinates other liens. I'd treat it as such.

[QDROphile]

I would explore a bit what the particpant is "being told" just as I would explore the details of a lender's notice that a payment has been missed on the mortgage loan and the default makes the property is subject to foreclosure. Often such notices do not mean the action is imminent. I agree that the circumstances fall into the safe harbor category for reason for withdrawal.

[MoJo]

A participant is being told that his house will be sold on the courthouse steps for back taxes unless they are paid by a specific date. It's not exactly a foreclosure or eviction, although the result is the same. How do others feel about this as safe harbor hardship reason?

I suppose it depends on where the house is (state law may vary), but in Ohio, unpaid taxes are a "lien" against the property and are, in fact, "foreclosed on" when the property is sold at sheriff's auction.

In my mind, it *is* a foreclosure. Forks comments on whether it is or is not a hardship condition being very apropo.

[BG5150]

Where does it say that the foreclosure must be imminent? Just curious.

[masteff]

This has been hashed around some before with people having opinions on just how far down the legal road it must have gone before it qualifies for hardship. A search on words like: eviction, foreclosure and prevent should find several related threads.

My professional opinion is that the reg says "to prevent", thus a threat of legal action (foreclosure or eviction) must be a reasonable consequence of a current set of facts. We might quibble the word "imminent" but at the very least it means "an actual foreseeable, and not merely theoretical, result". Something must exist sufficiently for it to be preventable. Some have opined that the debtee must have filed legal action. Others, myself included, feel it's sufficient to have a demand letter that states (no matter how politely) a debt is past due and that failure to come current has the consequence of legal action.

As to the orginal post, the property will be sold to cover the tax debt, the current owners will lose their right to occupy the property and the new owners will then have the right to evict. Thus, with adequate documentation, payment of past due property tax can prevent eviction.

[ErisaGooroo]

What if the participant (mother) is living in the "mother-in-law" quarters on the property and the house is owned by the daughter? Property Taxes are due and they will lose the house if back taxes are not paid. Technically, the "participant" does not rent from the daughter so I don't feel they could use the "prevent the participant from eviction from principal residence" rule.

Thoughts?

[Mike Preston]

You are correct, they can't.

[WhoLetTheDogsOut]

How about this variation on the subject. A participant and her husband are purchasing their primary residence. Due to a bank requirement (or for some reason to obtain the optimal interest rate) the home will be in the husband's name only. Can the wife still get a hardship for this purchase?

[Mike Preston]

Yes.

[My 2 cents]

How about this variation on the subject. A participant and her husband are purchasing their primary residence. Due to a bank requirement (or for some reason to obtain the optimal interest rate) the home will be in the husband's name only. Can the wife still get a hardship for this purchase?

Maybe the bank thinks the year is 1816. Is a requirement like that still legal anywhere in the US?

[hr for me]

@My2cents -- I suspect the "requirement" is acceptable to the husband/wife because the wife has terrible credit and if they use both names, they have to take into account both credit histories which could mean a much higher interest rate or no mortgage at all. I know lots of people who do it this way to keep the "bad credit" spouse off the mortgage which keeps them off the deed. In a way it is their way of playing the system, not some legal requirement of the bank.

[pmacduff]

ok - here is a situation I cannot believe I have not previously encountered:

Participant requests a hardship withdrawal because they are living in a shelter and want to move into an apartment. It obviously doesn't fall under the "prevention of eviction or foreclosure" but what about "purchase of primary residence"?

How loosely could/should the Plan Administrator interpret "purchase"?

[Belgarath]

IMHO, not that loosely! Rent just doesn't qualify. Of course, the plan could be amended to utilize a non-safe harbor definition or criteria for "financial hardship" to allow it. It has to not allow administrator discretion. It might be possible, for example, to define hardship as all hardship events that would qualify under the safe harbor definition (I'm not going to bother to list them here) then to add a category that defines homelessness as a qualifying hardship event, or something like that. You'd have to think about that one a while to get an appropriate definition or set of objective criteria.

Call me out of touch, but I wouldn't have expected this to be a common situation that would be encountered very often. Thankfully, I haven't ever seen it either.

[My 2 cents]

IMHO, not that loosely! Rent just doesn't qualify. Of course, the plan could be amended to utilize a non-safe harbor definition or criteria for "financial hardship" to allow it. It has to not allow administrator discretion. It might be possible, for example, to define hardship as all hardship events that would qualify under the safe harbor definition (I'm not going to bother to list them here) then to add a category that defines homelessness as a qualifying hardship event, or something like that. You'd have to think about that one a while to get an appropriate definition or set of objective criteria.

Call me out of touch, but I wouldn't have expected this to be a common situation that would be encountered very often. Thankfully, I haven't ever seen it either

If the person needs a hardship withdrawal to move to an apartment and pay rent, and not wanting to sound heartless here, how can they afford to move to the apartment? Things like rent have to be supported by pay, not savings (unless the person has enough savings to live on). Purchase of a primary residence or prevention of eviction or foreclosure are, presumably, non-recurring and of a greater magnitude than normal month-to-month living expenses. Practically speaking, unless the account balance is significant enough, it will not serve to permit the participant to afford more than can be earned currently. Or is the withdrawal needed to cover the security deposit, the final month's rent, or some other extraordinary cash need other than the recurring rent?

[BG5150]

Oftentimes, landlords require first and last months rent plus at least a month rent in security deposit.

So maybe this person doesn't have 3 months of rent saved up.

[pmacduff]

thank you for all the replies. I see I wasn't specific in my OP. The participant is not in a homeless shelter but rather temporarily in a shelter after leaving an abusive relationship.

Not that it changes the circumstance - still homeless (albeit temporarily). Belgarath's suggestion would work of course but I'm not sure they want to amend the hardship provsions.