Hardship for refinancing of primary residence

Unfortunately, refinancing does not meet the regulations which specifically states the safe harbor hardship is for "costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments)."   Refinancing of the mortgage does not satisfy the requirements.

What about her purchasing his share of the home?

Would it qualify to avoid eviction or foreclosure?

That was my thought Bill. If it was a straight refinance, it certainly would not qualify, but if the ownership of the property is changing from A & B to just A, then I think this is open to interpretation. Also, I would make sure any hardship distribution did not exceed half the value of the property. However, I think it is the Plan Administrator's decision on whether or not to interpret in that manner.

I have worked with a PA that immediately would approve the hardship under these circumstances, and I have worked with a PA that would not immediately approve this hardship.

Part of the decision here is the court has ordered the participant to refinance or sell.  If she doesn't refinance, she will have to sell and will no longer be able to live there (assuming she cannot cut a deal like Hugh Hefner did with the mansion). 

The tougher PA would ask about the immediate and heavy financial need, and would want to confirm that the funds are needed now to cover closing costs or an additional down payment required by the finance company for the participant to qualify for the refinanced mortgage.  You may have guessed this PA is not a believer in self-certification.

2 hours ago, Bill Presson said:

What about her purchasing his share of the home?

Here attorney has now offered to write a purchase agreement from him.  Is something like this what you meant?    

Here is just some additional commentary for thought.  Even if the PA were to approve it, there is a high likelihood that the participant will be asked by the IRS to provide back up to support the hardship when the participants files their 2023 income tax return.  I experienced that first hand with a medical hardship.  Now, I don't exactly know what can/would happen if the IRS states it did not meet the hardship reasons but that is another thing to consider.  I get the situation, but she already co-owns the property and I researched what Derrin Watson had to say on the matter and his response was "no".  Its hard in these situations, maybe the court order would do the trick but I would make sure the fiduciary knows it is their responsibility to make the call.

6 hours ago, karl said:

Here attorney has now offered to write a purchase agreement from him.  Is something like this what you meant?    

I'm just trying to find a reasonable way to make it work. The TPA doesn't have to make the decision. The Employer does (absent 3(16)) as it falls on them.

TPA vs PA vs Employer/Sponsor, one of my favorite nitpicks. The plan has a fiduciary plan administrator (PA) required by ERISA. That PA is appointed by the person specified in the plan/trust document, typically the plan adopter/settlor of the plan's trust, typically the employer/sponsor --  the Employer. As a separate matter, it is not the best idea for a corporate employer/sponsor to be the appointer, but that is an aspect of my nitpick that we will overlook this time. if the settlor does not appoint, the settlor is typically the PA by default. So typically the PA is the Employer. The settlor can appoint, or can authorize the PA to appoint, a special fiduciary for specified purposes, let's say for purposes of administering hardship distributions -- a TPA. The appointing PA can retain express authority to override the TPA, and has the duty to monitor the TPA and step in if the TPA is not performing in accordance with fiduciary standards (which would include operating in accordance with plan terms). If the TPA has been delegated authority and responsibility for hardship distribution administration, the the TPA decides, subject to the override by the PA to the extent provided in the plan documents (including the TPA contract) and ERISA fiduciary standards. All of this is implicit in Bill Presson's comment "The Employer does (absent 3(16)) do it falls on them." but there is a lot to understand and to line up within it. The Employer may or may not have a role. 

Thanks for precisely quoting my bad grammar.

1. A nitpick must be precise to maintain its integrity, authority, and fastidiousness. 2. There was no need to cavil with the statement itself. 3.  I am such a bad typist that it was easier to copy and paste than paraphrase.

I realize it would cost time and money (lawyers) but what if they used a DRO? 

karl’s description of the facts suggests the participant’s ex- is neither a current nor former spouse of the participant.

And the ex- might not be a child of the participant, and might not be a current dependent of the participant.

The court with jurisdiction of the participant and the ex- might be acting under law other than domestic-relations law.

And the court’s order might not “relate[] to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of [the] participant[.]”

ERISA § 206(d)(3)(B)(ii), 29 U.S.C. § 1056(d)(3)(B)(ii) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true.

A court’s order that is not a domestic relations order (as the statute, and so the plan, defines it) would not be a qualified domestic relations order.

Congress in 1984 might not have anticipated how often State courts are called to reorder money, contract rights, and other property rights between nonspouses in circumstances that otherwise seem somewhat similar to domestic-relations proceedings.

Her primary residence is "THIS half of the house" but after he moves out she will live in the other side of the house 51% of the time.

(Sorry, I'm slap-happy here, vacation next week!)