A bill introduced in the U.S. House of Representatives would waive early distribution penalties on certain qualified retirement plans if the funds are used to buy a house that has been in foreclosure for a year or more.
Bill Posey (R-Fla.) introduced H.R. 1526 — the Housing Recovery Act of 2011. It has been referred to the Committee on Ways and Means.
“It’s not an end-all fix,” Press Secretary George Cecala said. “It’s just another idea to help the housing market.”
The idea is to add stability to neighborhoods by promoting purchases by owner-occupants or those seeking a second home rather than investors who immediately “flip” the home. Under the bill, the purchaser must agree to hold the property for at least two years to be exempt from early retirement plan distribution penalties.
The bill is expected to apply to distributions from Roth IRAs, 401(k) plans and company pension plans. It would require the person to use the retirement distribution within 120 days of receipt by buying a home that “has been in foreclosure for a year or more.”
Cecala said Posey, a Realtor, anticipates that the one-year period would begin at the point that the foreclosed property is listed for sale, but said the congressman is open to amending the bill to be more specific about when the clock would start ticking.
Several states have extremely drawn-out foreclosure processes. Foreclosures in judicial state average about 13 months from start to finish. But once foreclosures are repossessed by the lender and enter what is known as real estate-owned status, or REO, it is not uncommon for them to be snapped up once listed for sale.
In Posey’s home state, his district covers Florida’s “Space Coast” not far from Orlando area. He is owner and founder of Posey Realtors & Co. in Rockledge, near Cape Canaveral.