IRS Issues Welcome Guidance Regarding Treatment of Releases of Property Securing REMIC Loans

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On August 17, the IRS issued Revenue Procedure 2010-30, much anticipated guidance relating to the release of property securing a loan that is held by a real estate mortgage investment conduit (REMIC). The guidance specifically addresses releases contemplated by the terms of the loan or that result from a casualty loss or condemnation of part or all of the property securing a loan. Final REMIC regulations issued in September 2009 (the Regulations), which generally require a valuation of the properties securing a loan at the time of any release of property, were criticized as overly burdensome, and sometimes inappropriate, with respect to certain common transactions.

Revenue Procedure 2010-30 responds to industry concerns with respect to the application of the Regulations by exempting certain releases of property from the valuation requirements of the Regulations. Specifically, under the Revenue Procedure, the IRS will not challenge a loan’s status as a “qualified mortgage” due to the release of an interest in real property securing the loan if the release is a “grandfathered transaction” or a “qualified pay-down transaction.”

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