There is an exemption for employee relocation loans under regulation 1.7872-5T in imputed interest will not apply to compensation-related mortgage or bridge loans if the following requirements are met: The loan agreement must require that the proceeds of the loan be used only to purchase the new residence and must be secured by a mortgage on the new principal residence acquired in connection with the relocation of the employee to a new principal place of work. The loan must be a demand or term loan. The benefits of the interest arrangements must not be transferable, and the below market interest rate (or the lack of interest) must be conditioned on the future performance of substantial services by the employee. The employee must certify to the employer that the employee reasonably expects to itemize deductions for each year the loan is outstanding. Can this employer-provided mortgage loan be issued to the employee to reimburse him for the down payment on the first mortgage?
Optional Information: State/Country of Question: California
NO, AS THE REQUIREMENT STATES THE LOAN MUST BE SECURED TO THE PROPERTY AS A MORTGAGE. YOU COULD POSSIBLY TAKE THE LOAN AND PAY DOWN THE MORTGAGE ON THE PROPERTY TO REDUCE THE OVERALL BALANCE, AND THEN IT WOULD BE A SECURED LOAN ON THE PROERTY
<p>Sorry for the delay I lost the connection. What if it is secured by the property as a second mortgage. Consider this scenario to permit the quailifed relocation mortgage loan to serve as down payment</p><p>employee puts down 25% ona let's say $400K property and borrows the rest from a bank. After the closing, the emplyer and employee negotiate a loan of $100,000 to the employee with the loan secured by property and also meeting all of the other criteria for a qualified relocation loan. </p>
IT SHOULD BE FINE, THE ONLY ISSUE THAT MAY ARISE IS THE PHRASE "The loan agreement must require that the proceeds of the loan be used only to purchase the new residence" THIS MAY MEAN THAT IT MUST BE PART OF THE INITIAL PURCHASE, NOT COME AFTER THE SALE.
Does it mean that? What if the employer=employee loan is transacted prior to the closing, perhaps involving a promissory note or the like, so that it appears to be the source of the funding
IF IT IS DONE PRIOR IT WOULD BE NO ISSUE AS IT MEETS THE STATUTE TERMS FOUND BELOW. STATUTE c) Special rules—(1) Employee-relocation loans—(i) Mortgage loans. In the case of a compensation-related loan to an employee, where such loan is secured by a mortgage on the new principal residence (within the meaning of section 217 and the regulations thereunder) of the employee, acquired in connection with the transfer of that employee to a new principal place of work (which meets the requirements in section 217(c) and the regulations thereunder), the loan will be exempt from section 7872 if the following conditions are satisfied: (A) The loan is a demand loan or is a term loan the benefits of the interest arrangements of which are not transferable by the employee and are conditioned on the future performance of substantial services by the employee; (B) The employee certifies to the employer that the employee reasonably expects to be entitled to and will itemize deductions for each year the loan is outstanding; and (C) The loan agreement requires that the loan proceeds be used only to purchase the new principal residence of the employee.
Experience: 10 years experience, General counsel for National Corp. firms, C.U.N.Y. INSTRUCTOR,