At the urging of a real estate coalition that includes NMHC, the Treasury Department issued guidance on September 15 making it easier for CMBS servicers to begin loan restructuring talks with borrowers before the loans go into default.  This guidance, Revenue Procedure 2009-45, will be published in Internal Revenue Bulletin 2009-40, dated October 5. 

Prior to the guidance, CMBS servicers triggered severe tax penalties if they began discussions before borrowers fell behind on their payments.  The Treasury guidance relaxes these rules so CMBS borrowers, like traditional bank borrowers, will be able to negotiate loan workouts to avoid defaults. 

In addition, the guidance allows servicers to modify loans regardless of when they mature.  The servicer only has to believe there is a "significant risk of default," even if the loan is performing.  This revenue procedure applies to loan modifications effected on or after January 1, 2008.

The Treasury Department also released final regulations (T.D. 9463) that take effect September 16.  The regulations expand the types of modifications that may be made to loans held by real estate mortgage investment conduits (REMICs).  They also include new rules relating to appraisals, lien releases and loan guarantees.     

It also issued Notice 2009-17, which requests comments on whether tax flexibility should be extended to loan revisions for properties held by other types of investment trusts.

NMHC welcomes these steps as necessary to deal with the refinancing crisis facing the commercial real estate sector.  All three notices are available at www.nmhc.org/goto/5398.