“New Treasury Guidance Eases and Clarifies Limitations on Modifications of Commercial Securitized Mortgages”

On September 15, 2009, the Treasury issued new regulations and a Revenue Procedure aimed at making it easier to modify securitized mortgage loans. The new regulations provide guidance under which a real estate mortgage investment conduit (“REMIC”) may release liens on or otherwise alter the real property used as collateral for a mortgage, without causing the REMIC to lose its favorable tax status. The new Revenue Procedure greatly expands the circumstances in which a REMIC or a non-REMIC grantor trust is able to conclude that a default is reasonably foreseeable with respect to commercial mortgage loans it holds, thus enabling it to modify those loans without triggering adverse tax consequences. This Stroock Special Bulletin examines the new regulations and Revenue Procedure, and their potential impact on the real estate industry and those involved in the securitization of commercial mortgage loans.