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IRS Guidance Expands Permissible Lien Releases for Qualified Mortgages Held by REMICs

August 27, 2010

By Andrew M. Short, Joseph P. Opich & Matt Walding

The Internal Revenue Service (IRS) released official guidance that expands the situations in which a release of a lien on an interest in real property securing a mortgage loan held by a real estate mortgage investment conduit (REMIC) will not cause such loan to fail to be a qualified mortgage under the REMIC rules. Under these rules, lien releases pursuant to the existing terms of the debt instrument or certain significant pay-downs of the debt will not adversely affect a REMICs status.

The new guidance continues the IRSs recent approach of expanding and relaxing the REMIC rules in response to turmoil in the commercial real estate market. Planning opportunities exist under the new guidance for REMICs and commercial mortgage loan servicers, although certain planning opportunities will expire after December 6, 2010.