rp-10-30.pdf

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Part III
Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, §§ 860D, 860G, 1001; 1.860G–2, 1.1001–3.)

Rev. Proc. 2010-30

SECTION 1. PURPOSE
This revenue procedure describes the circumstances under which the Internal
Revenue Service (the “Service”) will not challenge a mortgage loan held by a real estate
mortgage investment conduit (a “REMIC”) as other than a “qualified mortgage” on the
grounds that the mortgage loan fails to be principally secured by an interest in real
property for purposes of section 860G(a)(3)(A) of the Internal Revenue Code and
§ 1.860G-2(a)(8) of the Income Tax Regulations following a release of a lien on an
interest in real property that secures the mortgage loan.
SECTION 2. BACKGROUND—COMMERCIAL MORTGAGE LOANS
.01 Frequently, a single commercial mortgage loan is secured by liens on
multiple interests in real property.

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.02 The terms of a commercial mortgage loan typically allow the borrower to
obtain a release of a lien if certain conditions are satisfied. In a limited number of
cases, the borrower may obtain the release of a lien at will. More often, a lien release is
conditioned on a requirement that the borrower pay down the principal on the loan by a
prescribed amount. If the mortgage loan is secured by multiple properties, the terms of
the obligation may provide that certain properties may be sold and the sale proceeds
applied to pay down the loan. In general, the payment required must be no less than
the net proceeds from a sale of the property or no less than an amount that is calculated
by a predetermined formula.
.03 In addition, the terms of the obligation may provide that, in the event of a
casualty loss or a condemnation of all or a portion of the property, the borrower may
obtain the release of the affected property if it applies the insurance proceeds or the
condemnation award to pay down the loan.
SECTION 3. BACKGROUND — REMICS
.01 Commercial mortgage loans are commonly pooled and held in REMICs,
securitization vehicles governed by sections 860A through 860G.
.02 Section 860D(a)(4) provides, in pertinent part, that an entity qualifies as a
REMIC only if, as of the close of the third month beginning after the startup day and at
all times thereafter, substantially all of the entity’s assets consist of qualified mortgages
and permitted investments. This asset test is satisfied if the entity owns no more than a
de minimis amount of other assets. See
§ 1.860D–1(b)(3)(i). As a safe harbor, the
amount of assets other than qualified mortgages and permitted investments is de
minimis if the aggregate of the adjusted bases of those assets is less than one percent

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of the aggregate of the adjusted bases of all of the entity’s assets. Section 1.860D–
1(b)(3)(ii).
.03 With limited exceptions, a mortgage loan is not a qualified mortgage unless it
is transferred to the REMIC on the startup day in exchange for regular or residual
interests in the REMIC. See
section 860G(a)(3)(A)(i).
.04 The legislative history of the REMIC provisions indicates that Congress
intended the provisions to apply only to an entity that holds a substantially fixed pool of
real estate mortgages and related assets and that “has no powers to vary the
composition of its mortgage assets.” S. Rep. No. 99–313, 99
th
Cong., 2
d
Sess. 791–92,
1986–3 (Vol. 3) C.B. 791–92.
.05 Section 1.1001–3(c)(1)(i) defines a “modification” of a debt instrument as any
alteration, including any deletion or addition, in whole or in part, of a legal right or
obligation of the issuer or holder of a debt instrument, whether the alteration is
evidenced by an express agreement (oral or written), conduct of the parties, or
otherwise. Section 1.1001–3(e) governs which modifications of debt instruments are
“significant.” Under § 1.1001–3(b), for most federal income tax purposes, a significant
modification produces a deemed exchange of the original debt instrument for a new
debt instrument.
.06 Under §1.860G–2(b), related rules apply to determine REMIC qualification.
Except as specifically provided in §1.860G–2(b)(3), if there is a significant modification
of an obligation that is held by a REMIC, then the modified obligation is treated as one
that was newly issued in exchange for the unmodified obligation that it replaced.
See
§ 1.860G-2(b)(1). For this purpose, the rules in § 1.1001–3(e) determine whether a

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modification is “significant.” See § 1.860G-2(b)(2). Thus, even if an entity initially
qualifies as a REMIC, one or more significant modifications of loans held by the entity
may terminate the entity’s qualification if the modifications cause less than substantially
all of the entity’s assets to be qualified mortgages.
.07 Certain loan modifications are not significant modifications for purposes of
§ 1.860G–2(b)(1), even if the modifications are significant under § 1.1001–3.
Section 1.860G–2(b)(3) contains a list of modifications that are expressly permitted
without regard to the section 1001 modification rules.
SECTION 4. BACKGROUND —PRINCIPALLY SECURED BY AN INTEREST IN REAL
PROPERTY
.01 A mortgage loan is a qualified mortgage only if it is principally secured by an
interest in real property. Section 860G(a)(3)(A).
.02 In general, for purposes of section 860G(a)(3)(A), an obligation is principally
secured by an interest in real property only if it satisfies the “80–percent test” set forth in
§ 1.860G–2(a)(i). (Section 1.860G–2(a)(ii) contains an alternative test.)
.03 Under the 80–percent test, an obligation is principally secured by an interest
in real property if the fair market value of the interest in real property securing the
obligation—
(1) Was at least equal to 80 percent of the adjusted issue price of the
obligation at the time the obligation was originated; or
(2) Is at least equal to 80 percent of the adjusted issue price of the
obligation at the time the sponsor contributes the obligation to the REMIC.

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.04 In the absence of a lien release or certain other transactions that alter a legal
right or obligation either of a REMIC or of the issuer of a mortgage loan that is held by
the REMIC, the mortgage loan is not retested to determine whether the current value of
its real estate collateral still satisfies the principally secured test.
.05 Under § 1.860G–2(a)(8), if a REMIC releases its lien on an interest in real
property that secures a qualified mortgage, the mortgage ceases to be a qualified
mortgage on the date the lien is released unless either—
(1) The mortgage is defeased in the manner described in § 1.860G–2(a)(8)(ii); or
(2) The lien is released in a modification that satisfies both of the following
criteria:
(i) The modification either is not a significant modification as defined in
§ 1.860G–2(b)(2) or, under one of the exceptions in § 1.860G–2(b)(3), is not treated as
a significant modification for purposes of § 1.860G–2(b)(1); and
(ii) Following the modification, the obligation continues to be principally
secured by an interest in real property, as determined by § 1.860G–2(b)(7).
.06 Section 1.860G–2(b)(7) provides that, for purposes of §§ 1.860G–2(a)(8)(i),
1.860G–2(b)(3)(v), and 1.860G–2(b)(3)(vi), an obligation continues to be principally
secured by an interest in real property following a transaction that alters the legal rights
of the parties only if, as of the date of the transaction, the obligation satisfies either
paragraph (b)(7)(ii) or paragraph (b)(7)(iii) of § 1.860G–2.
.07 An obligation satisfies § 1.860G–2(b)(7)(ii) if the fair market value of the
interest in real property securing the obligation, determined as of the date of the
modification, is at least 80 percent of the adjusted issue price of the modified obligation,

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determined as of the date of the modification. If, as of the date of the modification, the
servicer reasonably believes that the obligation satisfies the criterion in the preceding
sentence, then the obligation is deemed to do so. A reasonable belief does not exist if
the servicer actually knows, or has reason to know, that the criterion is not satisfied.
For purposes of § 1.860G–2(b)(7)(ii), a servicer must base a reasonable belief on—
(1) A current appraisal performed by an independent appraiser;
(2) An appraisal that was obtained in connection with the origination
of the obligation and, if appropriate, that has been updated for the
passage of time and for any other changes that might affect the
value of the interest in real property;
(3) The sales price of the interest in real property in the case of a
substantially contemporary sale in which the buyer assumes the
seller's obligations under the mortgage; or
(4) Some other commercially reasonable valuation method.
.08 An obligation satisfies § 1.860G–2(b)(7)(iii) if § 1.860G–2(b)(7)(ii) is not
satisfied but the fair market value of the interest in real property that secures the
obligation immediately after the modification equals or exceeds the fair market value of
the interest in real property that secured the obligation immediately before the
modification. The criterion in the preceding sentence must be established by a current
appraisal, an original (and updated) appraisal, or some other commercially reasonable
valuation method; and the servicer must not actually know, or have reason to know, that
the criterion in the preceding sentence is not satisfied.

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.09 Under § 1.860G–2(a)(5), obligations secured by interests in real property
include mortgage pass-through certificates guaranteed by GNMA, FNMA, FHLMC, or
CMHC (Canada Mortgage and Housing Corporation) and other investment trust
interests that represent undivided beneficial ownership in a pool of obligations
principally secured by interests in real property and related assets that would be
considered to be permitted investments if the investment trust were a REMIC, provided
that the investment trust is classified as a trust under § 301.7701–4(c) of the Procedure
and Administration Regulations.
.10 Under § 1.860G–2(b)(6), if a REMIC holds as a qualified mortgage a pass-
through certificate or other investment trust interest of the type described in § 1.860G–
2(a)(5), the modification of a mortgage loan that backs the pass-through certificate or
other interest is not a modification of the pass-through certificate or other interest unless
the investment trust structure was created to avoid the prohibited transaction rules of
section 860F(a). Analogously, unless a substantial purpose of the trust structure was to
avoid the restrictions imposed by § 1.860G–2(a)(8) and § 1.860G–2(b), the release of a
lien on an interest in real property that secures an obligation held by the trust does not
cause § 1.860G–2(a)(8) automatically to disqualify the obligation.
.11 When there are significant declines in commercial real estate property
values, properties that secure commercial loans may fall in value to an amount below
the 80 percent threshold. The borrower may be in default on its obligation or default
may be reasonably foreseeable. In these instances, the servicer may work with the
borrower to avoid default.

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.12 In the preamble to final regulations published September 16, 2009 (the “Final
Regulations”), the Service noted that, although a qualified mortgage must be principally
secured by an interest in real property, a release pursuant to the terms of a mortgage
obligation is not a release that disqualifies the mortgage if the mortgage continues to be
principally secured by real property after giving effect to any releases, substitutions,
additions, or other alterations to the collateral. In addition, the preamble explains that a
lien release occasioned by a default or reasonably foreseeable default would not
disqualify a mortgage if the principally secured test continues to be satisfied.
See
T.D. 9463, 74 FR 47436-01.
SECTION 5. SCOPE
.01 This revenue procedure applies to a release of a lien on an interest in real
property that secures a mortgage loan held by a REMIC in circumstances in which
§§ 1.860G-2(b)(7)(ii) and 1.860G-2(b)(7)(iii) are not satisfied. A release of a lien that is
effected by either a grandfathered transaction described in section 5.02 of this revenue
procedure or by a qualified pay-down transaction described in section 5.03 of this
revenue procedure qualifies for the benefits of this revenue procedure.
.02 A grandfathered transaction is any release of a lien on an interest in real
property that satisfies the following two criteria—
(1) The lien release is not a modification for purposes of § 1.1001–3(c)
because it occurred by operation of the terms of the debt instrument
(including a lien release pursuant to the exercise of a unilateral option
of the borrower within the meaning of § 1.1001-3(c)(3)); and

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(2) The terms providing for the lien release are contained in a contract that
was executed no later than December 6, 2010.
.03 A “qualified pay-down transaction” is a transaction in which a lien is
released on an interest in real property and which includes a payment by the
borrower resulting in a reduction in the adjusted issue price of the loan by a
“qualified amount” as described in section 5.04 of this revenue procedure.
.04 A “qualified amount” is an amount that is equal to or greater than at least one
of the following:
(1) the sum of —
(a) the net proceeds available to the borrower from an arms-
length sale of the property to an unrelated person;
(b) the net proceeds from the receipt of a condemnation award
with respect to the property; and
(c) in a case to which (a) or (b) above applies, the net proceeds
from the receipt of an insurance or tort settlement with
respect to the property;
(2) an amount that is determined under the loan agreement and that
equals or exceeds the product of —
(a) the adjusted issue price of the obligation at the time of the lien
release; multiplied by
(b) a fraction equal to the fair market value at origination of the
released interest, divided by the aggregate fair market value at

1
0
origination of all of the interests in real property that secured the
loan immediately before the lien release;
(3) the fair market value (at the time of the transaction) of the interest in
real property the lien on which is released, plus the amount of any tort or
insurance settlement that is expected to be, or has been, received with
respect to the property and that is not reflected directly or indirectly in the
property’s fair market value at the time of the transaction;
or
(4) an amount such that, immediately after the transaction, the ratio of the
adjusted issue price of the loan to the fair market value of the interests in
real property securing the loan is no greater than what that ratio was
immediately before the transaction.
.05 The term “net proceeds” for purposes of section 5.04(1) of this revenue
procedure means the amount realized for purposes of computing gain or loss under
section 1001.
.06 If, as of the date of the lien release, the servicer reasonably believes that the
transaction satisfies one of the criteria set forth in section 5.04(3) or 5.04(4) of this
revenue procedure, then that criterion is deemed to be satisfied. A reasonable belief
does not exist, however, if the servicer actually knows, or has reason to know, that the
criterion is not satisfied. For purposes of this section 5.06, a reasonable belief must be
based on the information or methods described in § 1.860G–2(b)(7)(ii)(A)–(D).

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SECTION 6. APPLICATION
If a release of a lien on an interest in real property that secures a mortgage loan
held by a REMIC satisfies the requirements of section 5 of this revenue procedure, the
Service will not challenge the mortgage loan’s status as a qualified mortgage on the
grounds that the loan fails to be principally secured by an interest in real property for
purposes of section 860G(a)(3)(A) and § 1.860G-2(a)(8)(i)(B) following the release of
the lien.
SECTION 7. EXAMPLES
The following examples illustrate the application of this revenue procedure:
.01 Example 1

(1) Facts.

(i) On a date subsequent to December 6, 2010, Borrower B issued a mortgage
loan to lender L. At origination, the stated principal of B’s loan was $100 million, and
nine interests in real property (X
1
through X
9
) secured the loan. L contributed the loan
to R, a REMIC.
(ii) At the time when the loan was originated and the liens were created, the fair
market values of these properties were as shown in the center column below:
Real Property Interest Fair market value at
origination
Fair market value at
lien release
X
1

$20 million n/a
X
2

$5 million $2 million
X
3

$25 million $12.5 million
X
4
through X
9
$60 million $39 million

(iii) Under the loan documents, in the event that some of the real collateral
suffers a casualty loss, B may demand a release of the lien(s) on the affected collateral
but may do so only if B pays down the loan with the proceeds of a sale of that collateral
and the proceeds of any insurance settlement with respect to the casualty loss.

(iv) On Date 1, R released the lien on X
1
in a transaction that did not cause the
mortgage loan issued by B to cease to be a qualified mortgage.

1
2
(v) Subsequent to Date 1, on Date 2, properties X
2
and X
3
sustained a casualty
loss. Immediately prior to the casualty, properties X
2
and X
3
had an aggregate fair
market value of $19.5 million. On Date 2, after the casualty, they had a fair market
value of $14.5 million.

(vi) Consistent with B’s rights under the loan documents, B demanded a release
of the liens on properties X
2
and X
3
to enable B to sell them. At the time the liens on
these two properties were released, the values of the various properties securing the
loan were as shown in the right-hand column in the table above. B disposed of
properties X
2
and X
3
in an arms-length sale to an unrelated person. The net proceeds
from the sale within the meaning of section 5.05 of this revenue procedure were
$14 million, and B paid down the loan by that amount when B received those proceeds.
Subsequently, B received $5 million as an insurance settlement with respect to the loss
suffered by the two properties, and B paid down the loan by an additional $5 million
when those proceeds were received.

(2) Analysis.

(i) Under § 1.860G–2(a)(8), R’s release of the liens on properties X
2
and X
3

causes the loan to cease to be a qualified mortgage unless the release takes place in a
transaction that satisfies either paragraph (a)(8)(i) or paragraph (a)(8)(ii) of § 1.860G–2.
The release of the liens on X
2
and X
3
does not satisfy § 1.860G–2(a)(8)(ii) because the
release is not pursuant to a defeasance. The lien release, however, satisfies § 1.860G–
2(a)(8)(i) if the transaction in which it occurs meets the requirements of § 1.860G–
2(a)(8)(i)(A) and § 1.860G–2(a)(8)(i)(B).
(ii) The transaction in which the lien was released resulted from the exercise of
an option that is unilateral within the meaning of § 1.1001–3(c)(3). Thus, the transaction
is not a significant modification as defined in § 1.860G–2(b)(2) and therefore is
described in § 1.860G–2(a)(8)(i)(A). In addition, however, to satisfy § 1.860G–
2(a)(8)(i)(B), the loan must continue to be principally secured by an interest in real
property as determined by § 1.860G–2(b)(7).
(iii) The release of the lien on X
2
and X
3
does not satisfy the 80-percent test in
§ 1.860G–2(b)(7)(ii) or the alternative test in § 1.860G–2(b)(7)(iii). The loan, however,
continues to be treated as principally secured by an interest in real property if this
release and the associated paydown of the loan are within the scope of section 5 of this
revenue procedure.
(iv) The release of the liens on properties X
2
and X
3
is not part of a grandfathered
transaction described in section 5.02 of this revenue procedure because B issued the
loan after December 6, 2010.
(v) The release of the liens on properties X
2
and X
3
, however, is within the scope
of section 5.03 of this revenue procedure if it is part of a “qualified paydown
transaction.” First, the transaction involved a release of a lien on an interest in real
property and included a payment by the borrower that resulted in a reduction in the

1
3
adjusted issue price of the loan. Second, the transaction meets the requirements of
both section 5.03(4) and section 5.03(1) of this revenue procedure. Third, the payment
by the borrower to reduce the adjusted issue price of the loan is a “qualified amount” as
described in section 5.04(1) of this revenue procedure. The qualified amount is
$19 million, which is the amount realized for purposes of computing gain or loss under
section 1001 of the Code. Thus, the transaction satisfies the requirements of
section 5.03 of this revenue procedure. Therefore, under Section 6 of this revenue
procedure, the Service will not challenge the mortgage loan’s status as a qualified
mortgage on the grounds that, following the release of the liens, it fails to be principally
secured by an interest in real property for purposes of section 860G(a)(3)(A) and
§ 1.860G-2(a)(8)(i)(B).
.02 Example 2

(1) Facts.
(i) Assume the same facts as in (i) and (iv) of Example 1. Assume further that
the executed loan documents give B a unilateral right to obtain a release of any one or
more of the properties that secure the loan, but only if B pays down 110 percent of the
“allocated loan amount” for the property or properties the liens on which are being
released. The loan documents define “allocated loan amount” as the proportionate loan
balance of the properties on which liens are released, based on the relative appraised
values of the properties at origination of the loan.

(ii) At the time when the loan was originated and the liens were created, the fair
market values of the nine properties securing the loan were as shown in the center
column below. The appraised values at that time were the same.
Real Property Interest Fair market value at
origination
Fair market value at
lien release
X
1

$20 million n/a
X
2

$5 million $3.25 million
X
3

$25 million $16.25 million
X
4
through X
9
$60 million $39 million

(iii) At a time when the fair market values of X
2
through X
9
had declined by 35%,
B exercised its right to obtain a release of the liens on X
2
and X
3
. Immediately before R
released the liens, the loan’s adjusted issue price (within the meaning of § 1.1275-1(b))
for federal income tax purposes was $79 million (as a result of amortization and
prepayments on the loan). The unpaid loan balance for purposes of computing the
allocated loan amount under the loan agreement was $80 million. To obtain the lien
release, B paid $29,333,333 to reduce the unpaid principal on the loan. This amount
was determined as—
1.10 × $80,000,000 ×
([$5,000,000 + $25,000,000] / [$5,000,000 + $25,000,000 + $60,000,000])

1
4
(iv) Immediately before and after the lien release and paydown, the values of
properties X
2
through X
9
were as shown in the right-hand column in the table above.
Thus, the aggregate fair market value ($39 million) of the interests in real property that
secured the loan immediately after the release of the lien was less than 80 percent of
the loan’s adjusted issue price ($49,666,667). ($49,666,667 = $79,000,000 –
$29,333,333). ([39,000,000 / 49,666,667] = 78.5 percent).
(2) Analysis.

(i) Under § 1.860G–2(a)(8), R’s release of the liens on properties X
2
and X
3

causes the loan to cease to be a qualified mortgage unless the release takes place in a
transaction that satisfies either paragraph (a)(8)(i) or paragraph (a)(8)(ii) of § 1.860G–2.
The release of the liens on X
2
and X
3
does not satisfy § 1.860G–2(a)(8)(ii) because it is
not pursuant to a defeasance. The release of the liens on X
2
and X
3
, however, satisfies
§ 1.860G–2(a)(8)(i) if the transaction in which the liens are released meets the
requirements of § 1.860G–2(a)(8)(i)(A) and § 1.860G–(a)(8)(i)(B).
(ii) The transaction in which the liens were released resulted from the exercise of
an option that is unilateral within the meaning of § 1.1001–3(c)(3). Thus, the transaction
is not a significant modification as defined in § 1.860G–2(b)(2) and therefore is
described in § 1.860G–2(a)(8)(i)(A). In addition, however, to satisfy § 1.860G–
2(a)(8)(i)(B), the loan must continue to be principally secured by an interest in real
property as determined by § 1.860G–2(b)(7).
(iii) The release of the liens on X
2
and X
3
does not satisfy the 80-percent test in
§ 1.860G–2(b)(7)(ii) or the alternative test in § 1.860G–2(b)(7)(iii). The loan, however,
continues to be treated as principally secured by an interest in real property if the
release and the associated paydown of the loan are within the scope of section 5 of this
revenue procedure.
(iv) The release of the liens on properties X
2
and X
3
is not part of a grandfathered
transaction described in section 5.02 of this revenue procedure because B issued the
loan on a date after December 6, 2010.
(v) The release of the liens on properties X
2
and X
3
, however, satisfies section
5.03 of this revenue procedure if it is part of a “qualified paydown transaction.” First, the
transaction involves a release of a lien on an interest in real property and contains a
payment by the borrower that results in a reduction in the adjusted issue price of the
loan. Second, because the transaction is pursuant to the terms of the loan document
and is not a modification for purposes of § 1.1001-3, the condition in section 5.03(1) of
this revenue procedure is satisfied. Third, the payment by the borrower to reduce the
adjusted issue price of the loan is a “qualified amount” because it is not less than the
amount described in section 5.04(2) of this revenue procedure. The $29,333,333
amount by which the loan was paid down (the contractually determined allocated loan
amount) is greater than the minimum amount of $26,333,333, which is required by
section 5.04(2). ($26,333,333 = [79,000,000 × (30,000,000 / 90,000,000)]). (The value
of X
1
at origination is not included in the denominator because X
1
did not secure the

1
5
loan immediately before the lien release.) Thus, the transaction is a qualified paydown
transaction within the meaning of section 5.03 of this revenue procedure, and, therefore,
under section 6 of this revenue procedure, the Service will not challenge the mortgage
loan’s status as a qualified mortgage on the grounds that, following the release of the
liens, it fails to continue to be principally secured by an interest in real property for
purposes of section 860G(a)(3)(A) and § 1.860G-2(a)(8)(i)(B).
.03 Example 3

(1) Facts
.
(i) Assume that the facts are the same as (i) of Example 2, except that at
origination there was also a tenth property (X
10
) securing the loan. Property X
10
was an
“outparcel,” which had not been appraised at the time of origination of the loan and to
which L had not assigned any value in underwriting the loan. The loan documents at
origination granted B an unconditional right to demand a release of the lien on X
10
at
any time, without making any special payment on the loan. Although the value of
property X
10
was small compared to properties X
1
through X
9
, it was positive at all times
relevant to this example. Moreover, at the time of the lien release described below, the
servicer of the loan knew or had reason to know that the fair market value of X
10
had
been positive at origination.
(ii) At the time when the loan was originated and the liens were created, the fair
market values of the ten properties securing the loan were as shown in the center
column below. Except for property X
10
, the appraised values at that time were the
same. Immediately before and after the lien release, the fair market values of
properties X
2
through X
10
were as shown in the right-hand column below. (Except for
property X
10
, the information in this table is the same as that in Facts (ii) of Example 2.)
Real Property Interest Fair market value at
origination
Fair market value at
lien release
X
1

$20 million n/a
X
2

$5 million $3.25 million
X
3

$25 million $16.25 million
X
4
through X
9
$60 million $39 million
X
10
Greater than zero Greater than zero

(iii) After Date 1
,
B exercised its right to demand a release of the lien on property
X
10
(the outparcel). B did not make any payment on the loan in connection with the lien
release.
(2) Analysis.

(i) Under § 1.860G–2(a)(8), R’s release of the lien on property X
10
causes the
loan to cease to be a qualified mortgage unless the release takes place in a transaction
that satisfies either paragraph (a)(8)(i) or paragraph (a)(8)(ii) of § 1.860G–2. The lien

1
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release on property X
10
does not satisfy § 1.860G–2(a)(8)(ii) because it is not pursuant
to a defeasance. The lien release on property X
10
satisfies § 1.860G–2(a)(8)(i) only if
the transaction in which it occurs meets the requirements of both § 1.860G–2(a)(8)(i)(A)
and § 1.860G–2(a)(8)(i)(B).
(ii) The transaction in which the lien was released resulted from the exercise of
an option that is unilateral within the meaning of § 1.1001–3(c)(3). Thus, the transaction
is not a significant modification as defined in § 1.860G–2(b)(2) and therefore is
described in § 1.860G–2(a)(8)(i)(A). In addition, however, to satisfy § 1.860G–
2(a)(8)(i)(B), the loan must continue to be principally secured by an interest in real
property as determined by § 1.860G–2(b)(7).
(iii) The release of the lien on X
10
does not satisfy the 80-percent test in
§ 1.860G–2(b)(7)(ii) or the alternative test in § 1.860G–2(b)(7)(iii).
(iv) The unilateral right to release the lien on property X
10
without paying down
the loan is not a grandfathered transaction described in section 5.02 of this revenue
procedure because B issued the loan after December 6, 2010.
(v) The release of the lien on property X
10
is within the scope of section 5.03 of
this revenue procedure only if it is pursuant to a “qualified paydown transaction.” Under
the loan documents, the allocated loan amount of property X
10
may be zero, but that
amount does not satisfy section 5.04(2) of this revenue procedure. Although property
X
10
was assigned no value for underwriting purposes, the servicer knew or had reason
to know that, at origination, it

had a value greater than $0. Therefore, the amount
required by section 5.04(2) of this revenue procedure is greater than zero.

(vi) Because the transaction does not meet the requirements either of section 5
of this revenue procedure or of § 1.860G–2(b)(7)(ii)–(iii), § 1.860G–2(a)(8)(i)(B) is not
satisfied, and § 1.860G–(a)(8) causes the loan to cease being a qualified mortgage on
the date that the lien is released.

SECTION 8. EFFECTIVE DATE
This revenue procedure applies to releases of liens on interests in real property
securing mortgage loans held by REMICs that are effected on or after September 16,
2009.
SECTION 9. DRAFTING INFORMATION
The principal author of this revenue procedure is Richard LaFalce of the Office of
Associate Chief Counsel (Financial Institutions and Products). For further information,
contact Mr. LaFalce on (202) 622–3930 (not a toll-free call).