10-Yr. Principal Residence Loan - Documentation

[Phlyers]

I have a participant applying for a 10 year loan, but mentions her name will only be on the deed.  She is going to gift the loan proceeds to her fiancé and the debt to acquire the home is only in his name.  The ERISA books are a little light on the documentation required.  I looked through similar threads on this.  But, doesn't the documentation need to show that she also incurred the debt to acquire the home?

[Lou S.]

She's on the deed right? It would seem the Principal Residence Loan exception to the 5 year rule should apply.  What am I missing?

[Larry Starr]

2 hours ago, Phlyers said:

I have a participant applying for a 10 year loan, but mentions her name will only be on the deed.  She is going to gift the loan proceeds to her fiancé and the debt to acquire the home is only in his name.  The ERISA books are a little light on the documentation required.  I looked through similar threads on this.  But, doesn't the documentation need to show that she also incurred the debt to acquire the home?

She did incur debt; she borrowed from the plan to buy a house.  Where is the concern?  Her name is on the deed, so she has borrowed from the plan to purchase a principal residence.  What does it matter if the fiance also has personal debt with regard to the property?  I'd say it's a safe harbor loan (which is I think what you are asking).

[jpod]

I find it hard to believe that she is on the deed but not a party to the mortgage loan.  Is that possible? 

[Larry Starr]

3 hours ago, jpod said:

I find it hard to believe that she is on the deed but not a party to the mortgage loan.  Is that possible? 

I don't see why not; the bank will encumber the property via the registered mortgage. That would probably require consent of the participant who is not a party to the outside mortgage.  I expect that if she doesn't consent, there will be no loan from the bank.