I understand that IRA loans need to be non-recourse. I talked to a commerical RE lender who does the Freddie Mac Commercial loans and his sample loan doc has the following language:
Non-recourse to Borrower and Guarantor(s), except for standard Freddie Mac recourse carve-outs.
The borrower is the LLC, and the Guarantor would be me. It explicitly stated that the guarantor would be non-recourse to the loan, "except for standard Freddie Mac recourse carve-outs." The lender explained that the standard carve-outs include committing criminal activities on the property, failing to pay property tax and failing to purchase insurance for the property. In those conditions, it will become recourse to the guarantor.
Can anyone please let me know in this case, will this loan still qualify for a IRA loan?
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2y
I'm struggling to understand the part in the post that says "guarantor would be non-recourse to the loan". By definition, recourse is where a lender has "recourse" against a party or guarantor on a loan. I'm not sure that's correct. I was not aware that Freddie allowed non-recourse deals. Recourse busts your IRA. Who is your Third Party Administrator. I would run this specific scenario by them, but based on the limited info above, I would say no.
I don't think so, it has to be non-recourse, period. If the IRA fails to pay property taxes or insurance bills - you are then personally responsible, which would be a violation of the IRS rules.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2y
I'm struggling to understand the part in the post that says "guarantor would be non-recourse to the loan". By definition, recourse is where a lender has "recourse" against a party or guarantor on a loan. I'm not sure that's correct. I was not aware that Freddie allowed non-recourse deals. Recourse busts your IRA. Who is your Third Party Administrator. I would run this specific scenario by them, but based on the limited info above, I would say no.
I don't think so, it has to be non-recourse, period. If the IRA fails to pay property taxes or insurance bills - you are then personally responsible, which would be a violation of the IRS rules.
I'm struggling to understand the part in the post that says "guarantor would be non-recourse to the loan". By definition, recourse is where a lender has "recourse" against a party or guarantor on a loan. I'm not sure that's correct. I was not aware that Freddie allowed non-recourse deals. Recourse busts your IRA. Who is your Third Party Administrator. I would run this specific scenario by them, but based on the limited info above, I would say no.
Thank you. They said it is a no because it is a conditional non-recourse clause.
Freddie Mac do offer commercial non-recourse real estate loans. It usually requires a much larger down payment, like 50%. And it will put your name on it as the non-recourse guarantor, which turns into recourse under certain conditions like committing crimes on the property, failing to pay prop tax or insurance..
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Hey Zehua,
The loan you're considering appears to meet IRA requirements as it's structured as non-recourse to both the LLC borrower and yourself as guarantor, except for carve-outs like criminal activities on the property, unpaid property taxes, and lack of insurance.
These carve-outs are typical in commercial real estate loans, including those backed by Freddie Mac, and are designed to protect the lender without necessarily compromising the loan's non-recourse status under IRA rules.
To ensure compliance, it's important to have your IRA custodian review the loan documents to confirm that the carve-outs align with the IRS guidelines for IRA investments in real estate. This step ensures that your IRA remains compliant and that you don't inadvertently violate any regulations regarding personal guarantees or liabilities beyond the property itself.
The loan you're considering appears to meet IRA requirements as it's structured as non-recourse to both the LLC borrower and yourself as guarantor, except for carve-outs like criminal activities on the property, unpaid property taxes, and lack of insurance.
These carve-outs are typical in commercial real estate loans, including those backed by Freddie Mac, and are designed to protect the lender without necessarily compromising the loan's non-recourse status under IRA rules.
To ensure compliance, it's important to have your IRA custodian review the loan documents to confirm that the carve-outs align with the IRS guidelines for IRA investments in real estate. This step ensures that your IRA remains compliant and that you don't inadvertently violate any regulations regarding personal guarantees or liabilities beyond the property itself.
Thank you. I asked my IRA Custodian but they were not sure how to answer this question for me.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
2y
Quote from @Account Closed:
Hey Zehua,
The loan you're considering appears to meet IRA requirements as it's structured as non-recourse to both the LLC borrower and yourself as guarantor, except for carve-outs like criminal activities on the property, unpaid property taxes, and lack of insurance.
These carve-outs are typical in commercial real estate loans, including those backed by Freddie Mac, and are designed to protect the lender without necessarily compromising the loan's non-recourse status under IRA rules.
To ensure compliance, it's important to have your IRA custodian review the loan documents to confirm that the carve-outs align with the IRS guidelines for IRA investments in real estate. This step ensures that your IRA remains compliant and that you don't inadvertently violate any regulations regarding personal guarantees or liabilities beyond the property itself.
I would have to disagree with you, Zachary. If property tax payment is missed, the IRA account owner becomes personally responsible, which violates IRS rules.
The loan you're considering appears to meet IRA requirements as it's structured as non-recourse to both the LLC borrower and yourself as guarantor, except for carve-outs like criminal activities on the property, unpaid property taxes, and lack of insurance.
These carve-outs are typical in commercial real estate loans, including those backed by Freddie Mac, and are designed to protect the lender without necessarily compromising the loan's non-recourse status under IRA rules.
To ensure compliance, it's important to have your IRA custodian review the loan documents to confirm that the carve-outs align with the IRS guidelines for IRA investments in real estate. This step ensures that your IRA remains compliant and that you don't inadvertently violate any regulations regarding personal guarantees or liabilities beyond the property itself.
I would have to disagree with you, Zachary. If property tax payment is missed, the IRA account owner becomes personally responsible, which violates IRS rules.
I see. I am not an expert, so I appreciate your insight!