The Internal Revenue Service introduced a new Revenue Procedure (2009-45) earlier this month that would make it easier for real estate mortgage investment conduits (REMIC) to modify securitized loans that are not yet in default but are likely to do so prior to maturity. The modification allows REMIC's to alter their commercial loans without jeapoardizing their tax status or exposing them to prohibited transaction taxes. In the procedure, the IRS has identified the current problem as follows:
In particular, borrowers under many of the commercial mortgage loans that will mature in the next few years are concerned that they will encounter great difficulty in obtaining refinancing for these loans. Because they had always anticipated using the proceeds from refinancing to satisfy the principal balance at maturity, the borrowers are often at risk of defaulting when their loans mature. This may be true even for loans in which the underlying commercial real estate is providing more than enough cash flow to satisfy debt service before maturity.
The Real Estate Roundtable expressed its hope that the new rules will help ease some of the liquidity problems in commercial real estate according to a CPE article. "Amidst a massive wave of maturing commercial real estate debt—and still virtually no credit available for refinancing—borrowers need to be able to talk with their loan servicers about restructurings in a timely manner, before the point of default," Jeffrey DeBoer, Roundtable president & CEO, said in a statement. "By easing the tax penalties on changes to securitized ‘conduit debt’—i.e., loans held within a REMIC—the IRS has taken a very positive step."
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