WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES?? "Let's all be careful out there.."

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WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES?? "Let's all be careful out there.."

WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES??

Depends on whether you are a

HOME BUYER
HOME SELLER
REAL ESTATE LICENSEE
IRS TAX FORM REVIEWER
LEGISLATIVE BILL WRITER
OTHER

Sadly, this is a perfect example of the fact that the brains who dreamed up the income tax credit do not have the foggiest idea about how their programs effect the tax payers, or should I use the term the IRS uses, "Worker". You gotta love that. SEE:

The Worker, Homeownership, and Business Assistance Act of 2009

WHY IS THIS SO IMPORTANT? Because the determination of what constitutes a BINDING contract may cause the denial of the tax credit to MILLIONS of tax return filers who believe that they qualify, plan to use the funds and, generally, realy on the advice OF REAL ESTATE AGENTS in matters of real estate.

HAVE YOU BEEN ASKED FOR ADVICE ABOUT THE CREDIT??? I surely have.

Lola Audu has published a post examining this matter, however, as with any real estate practitioner, has serious questions about the meaning of the IRS guidelines. As for Jim Hale's thoughtful comment, I could easily read the IRS instructions that way. However, without APPROVAL by the seller's lender, there is no "binding" agreement. What "binds" a Contract of Sale??

For one thing, satisfaction of all contingencies. When is the "lender approval" contingency of the Contract of Sale for a short sale satisfied?? When you get the approval letter FROM THE SELLER'S LENDER.

Sadly, those conditions do not include satisfaction of that critical contingency, approval of the Contract of Sale by the Seller's lender. Without which, there has not been, is not and never will be a BINDING Contract.

What is going to happen when thousands of home buyers file for the tax credit and the IRS denies their application because, without satisfaction of that contingency by April 30, there is no BINDING Contract of Sale.

The key word is, of course, BINDING.

I'm willing to accept that, for purposes of the Tax Credit, the BINDING condition for claiming the tax credit is the date of acceptance between the parties, the BUYER and the SELLER.

However, I am not going to STAKE MYSELF OUT AND GIVE THAT ADVICE TO A CONSUMER. I'm going to refer inquiries to the IRS web site and let the consumer come to their own conclusions or the advice of their tax consultant.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

"Honey, were you able to find out if our contract will qualify for the tax credit?"

"Not yet Dear. I asked 4 people and got 4 answers."

_______________________________________________________________________________________________________

Want to learn more about Loudoun County, VA? Join Loudoun County, VA on Facebook!

Posted by Lenn Harley, Real Estate Broker, Virginia & Maryland on 04/13/2010 06:34 AM

Comments (95)

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95 Comments on WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES?? "Let's all be careful out there.."

APR

2010

Lenn,

Unless we're also CPAs, giving tax advice is a huge error. Thanks for again warning us all.

That said, I'm not certain I think the IRS is going to dissect contingencies as long as the contract is executed this month and closes in time...

Lenn, lots or room for different interpretations of the tax credit. Also, some are taking advantage of it in ways not meant by the intent of the bill.

I've seen alot of agents guessing if the buyer qualifies. The agents may want them to qualify. I carry the IRS code with me to open houses and hand it to buyers with my card.

Lenn, Definitely subject to interpretation.

As a side note our Florida contracts state, right above the signature line:This is intended to be a legally binding contract, if not fully understood, seek the advise of an attorney prior to signing.

Of course intending and being is two different things!

Lenn, I read Lola' post this morning. Thank you for suggesting they call or go to the IRS web site.

I would think Binding means between the buyer and seller. But, are they really bindiing? I am not so sure now.

Buyers walk all the time..on short sales.

I'm going to make some calls today.

Lenn, I would certainly tell someone to call the IRS for clarification. It is a big on the vague side, or written by someone who doesn't fully understand the real estate world.

Lenn, The only recommendation I have made is for buyers to get under contract well before the deadline to allow for inspections, appraisals, etc.. but sending them to the IRS website is the way to go.

You're right, it's not worth the risk - we should send them to the website.

I doubt that is what was intended when you talk about binding contracts. I don't see anywhere in the tax credit language where it says all contingencies need to be met? It says a binding contract. The contract is between the buyer and seller not the lender.

Lenn, You are right that we need to refer clients to the right place for information that is not real estate.

Lenn, once again advising clients on legal issues or tax matters is beyond our boundaries, and a quick way to a law suit. The right tactic is to distance ourselves in any matter where a buyer relied on our advice solely, to make a money matter discussion. This could come back to bite an agent making such claims.

All this talk of bondage on Active Rain. Tsk tsk.

And no advice about a "safe word."

We are not tax advisors nor IRS interpreters. Be careful out there & just practice real estate.

Never advise clients about info that goes beyond our expertise.....tax credits are not my expertise....always refer to the right people and be safe.....

The safest bet would be to refer all questions to their CPA.

Irene. Agreed. I'm not giving advice to consumers for this matter. WAY above my pay grade.

Gabe. Indeed and I do not intend to be put in the middle.

John A. MY HERO!

Dick and Dixie. Our contract has the same language. Yet, once the contract is a Short Sale, everything changes. That's the conumdrum.

Missy. It's the "short sale" condition that changes all the rules of contract law.

Andrea. Indeed. Let them make their own decision.

Barb. Simple risk reduction.

Pam. Yep. When the government is ambiguous, let the consumer decide.

Bill. I agree 100%. That said, I am not about to interpret the guidelines for a consumer and then have the IRS undermine the word of every real estate agent in the country.

It's not that I can't read the guidelines. I can. What I don't know is, did the IRS guideline writers read a contract????? and if they did, do they know what they read?????

Yet I here Realtors saying that despite the fact you need a lender approval to meet the contingency of a short slae, they say don't worry, you'll get it. Yes, they will get it but not the way they want.

Lenn, I agree, refer them off to the proper professional. The IRS web site is also a good source many times.

Good advice Lenn. I'm not a lawyer, I'm not an inspector, and I'm not an accountant. But, I can refer my clients to some who are experts in these fields!! :)

Scott. Indeed and tax credits are not real estate matters.

Steve. I'm not afraid to "stake myself out about real estate matters", but I don't recall this matter in real estate broker school.

Phil. What and where are you reading???? You lost me.

Lyn. That's the message.

Dennis. Sadly, many consumers will miss the deadline and blame the agent. Or, not miss the deadline, not settle and blame the agent. Or, not . . . . . . and blame the agent.

Tricia. Or, TurboTax??? Or, H&R Block? Or, the IRS?? How many folks qualifying for this tax credit use the services of a CPA?????

Joe. That's the very basis of my caution.

William. The IRS web site didn't answer my questions and I doubt that it will the consumers'. The IRS web site is silent as to Short Sales and that is the cause of confusion.

Seems like the legislative gurus are working feverishly to make sure that the only thing a realtor CAN SAY is "Would you like for me to drive?"

Sonja. So can I and I will.

Good point on this. It something I will make sure buyers are aware of if they make an offer on a short sale.

This is an answer only a tax professional or the IRS can clarify. From experience we know that buyers can walk while waiting for third party approval and will without a moments hesitation. It has changed the meaning of "binding" in the real estate world over the last 2 years.

Giving any advice other than what we're licensed for is just asking for trouble.

But directing them to the "professionals" is the best advice you can give.

Great job with this post Lenn.

I have adviced buyers to be careful when dealing with short sales if they are looking for the tax credit. Great post.

Chuck. Best be careful when advising consumers about non-real estate matters.

Cindy. BINGO!!

Craig. Thanks. Just throwing a warning out there.

Gita. So have I. So have I.

excellent post as usual Lenn....

My opinion is that you're wrong on the contingencies. If I write an offer contingent on the sale of my client's home and contingent on an inspection, they accept it, that then becomes a binding contract. All terms in that contract need to be satisfied. Even though they may not have had the inspection yet or sold their house yet, that is still a binding contract none the less.

That said, I can see where the grey area of confusion might be reguarding short sales. My GUESS is that the irs will probably not question it as long as the mutual acceptance date on the purchase and sale agreement is in time. However, I'm with everyone else in referring the client to a tax specialist because I certainly don't want to be held liable for that $8,000 if I'm wrong on that, and their is clearly some wiggle room left for interpretation.

Maybe I should take the last half of the month for vacation and not sell anything more right now. LMAO.

I'd be interested to hear if someone finds an athoritative answer on this concern from the mouth of the IRS.

I don't think all contingencies need to be satisfied for a contract to be binding. That would be silly. A signed, executed contract is a legally binding contract. Dates and contingencies must be adhered to and settled, but it's still binding. Short sales are a different animal all together, and I don't think a regular sale should be grouped together with the guidelines of a short sale, especially when listing agents are submitting multiple "contracts" to the banks for approval.

I am really hoping that sanity and simplicity prevails and all of this is clarified probably after 7/1/10 that the real KEY date was (surprise!!!!) 6/30/10 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(settled by)

Hi Lenn - Operating in the World of Pinheads makes things very tricky indeed. Best bet is to refer buyers to IRS website, or, better yet, to a real estate attorney and/or tax attorney and/or CPA. Which should pretty much burn up any tax credit the buyer may or may not have coming to them.

You are FAST!!! As you can see from my second comment on Lola post just a few minutes ago, I was worrying this bone over the issue of "binding contract", I think just a post or two behind you. And here you are!

A contract is binding when fully accepted by all parties and all contingencies have been resolved.

From the Illinois Short Sale Addendum to the Multi-Board 5.0 Agreement:

"The Contract is contingent upon the successful negotiation with Seller’s lienholders and/or third parties for a payoff of less than the total amount owed....Buyer and Seller acknowledge that a “short sale” requires the written approval of all of such lienholders and/or third parties, and that there can be no assurance such approvals will be obtained."

This means that the contract IS NOT BINDING untill all written approvals are obtained.

The fact that short sale approval can take a long time has nothing to do with definitions of what constitutes a binding contract.

Of course the real answer is that I am a Realtor, not an attorney, tax advisor, etc. and so shouldn't give tax advice.

Lenn,

Wise advice as always...you are a treasure!

Yes, Lenn, I've told people "my opinion doesn't count, consult your CPA or tax attorney" several times. I did feel good about one that actually closed yesterday. I'm pretty sure they qualify, but yet I still told them, take your contract and HUD statement to your CPA.

Unless the IRS defines what they mean by "binding", you would use the common use meaning of the word. I would think that you can get many real estate "experts" to agree that binding is generally meant to mean the date that buyer and seller agree to terms, even if there are contingencies.

Nothing is for certain but I think the chances of the IRS messing around with the binding term is probably very little. I'd be reallly surprised if you closed by 6/30/10, attached a contract with a binding date before 4/30/2010 and they gave it any more consideration.

But that's my personal opinion. No CPA or IRS employee is going to have any more detailed information so you are going to have to make your own determination and be prepared to defend it.

I was justing talking to a client this morning, and I advised him to go to the IRS website, and make sure they qualify for the tax credit. I agree send them to the source

I am definitely advising people to check with IRS for clarification. Nothing is for sure!

The tax credit is a possibility not a given. Until they take all their paperwork to the 'right' source for approval no one knows for sure.

Leslie. I believe you have published the answer to my question.

Fact is, SHORT SALES are different and not the general contingency.

The MD Short Sale Addendum heading is

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The Contract of Sale dated ________________, Address _________________________________________________

City ______________________________________, State ________________________ Zip ___________________ between Seller _______________________________________________________________________________ and Buyer __________________________________________________________________________ is hereby amended by the incorporation of this Addendum, which shall supersede any provisions to the contrary in this Contract. [emphasis added].

The question now becomes, if the amendment supersedes any provisions to the contrary in the contract, it appears that the lender's approval is pertinent and a part of the contract.

Lori. I'm not sure how helpful, or even necessary, this is.

Tammy. That's all we can do. Yours is safe, I'm sure because it's already closed prior to April 30, but what about a contract that is signed by the buyer and seller on April 29th and the lender approval isn't received before that date??

Tim. That would surely be the opinion of most, including me. Then again, after reflection, . . . . perhaps we just think too much, but read Leslie's comment above.

Susan. Better safe than . . . .

Sharon. Nothing is sure these days for sure.

Martha. Imdeed. It's just not completely clear BECAUSE the IRS instructions don't clarify what is a "binding" contract.

I'm not giving any advice on this whatsoever....and I'm going to proceed as if it is going to require short sale lender approval too. I thought that the verbage was "all signatures necessary to close" wasn't it? I send all these questions to a CPA though...not my area of expertise.

Karen. This is, indeed, a cloudy area. Ask five agents and get five opinions.

A binding contract is one where a competent buyer and seller have had a meeting of the minds and have signed off on it with consideration. I would have no problem defending that stance in a court of law. If this is not the case then one could say a contract is not binding until it has been fully executed as there is ALWAYS a way to break a contract. Executed is a closed transaction by the way contrary to popular belief that it is an accepted contract.

The IRS has ruled that this can be a contract for deed or owner financed deal.

Of course I am not a CPA and do not give tax advice to buyers oir sellers. That's not my job.

Legally binding simply means that one agrees with the terms under a written or spoken contract to behave in certain ways. The terms and conditions of such a contract can either prohibit or define appropriate behavior under the agreement. Violation of terms in a legally binding agreement can either void the contract, or cause legal repercussions.

By the way, a contract to purchase a short sale is just as binding as any other purchase contract. It just has an extra contingency in it.

As a CPA (inactive) I would caution sending people to the IRS website and especially calling the IRS hotlines for guidance on this subject (or any tax subject for that matter). Why? Because the IRS Commisisoner is on record for stating that incorrect advise given by an IRS agent is not a defense.

Therefore, I suggest that if anyone has a question about whether they will qualify for the federal tax incentives, that they contact their tax adviser or an attorney for specific advice.

Like you, I too do not want to tread where I don't belong!

Bryant. You are smarter than the average bear.

That said, it would appear that the government enforcers of all things tax related are not necessarily so, case in point, Sec. Donovan of HUD announces that that Tax Credit could be used for down payment, albeit quietly corrected.

All the above said, Leslie Ebersole has a very pertinent concern in her comment.

How can one honestly interpret the IRS code on Tax Credits when it is almost impossible to understand filing your own taxes? CPA's are the experts here. Binding contracts are another specialty handled by attorneys.

This should be the REALTORS Creed on all legal and tax advice: I will always PREFER to DEFER any questions to the right professional, so I will always REFER my clients to an EXPERt to CONFER with.

Great post, Lenn. I know that not getting definitive answers from their agent or finance consultant is frustrating to consumers; however, there are just too many variables for me to even broach an opinion. As with all things in finance: The devil is in the details!

Hello:

I have no problem approaching an opinion: If it's in escrow, it's binding. I think it's pretty black and white. If we can't give a clear, straight answer to our clients, then what good are we?

Before I put pen to paper, let me state that I'm not an attorney, and that you should always seek competent tax and/or legal advice. The following is my opinion, and nothing more:

A "binding contract" is one where both parties agree to the terms, put it in writing, and something of value is given in consideration for the written agreement (earnest money deposit). And, a "binding contract" is most likely subject to case law in your state.

Here in Massachusetts, a "signed standard "Offer to Purchase" form is a binding and enforceable contract to sell real estate, even if the offer is subject to the signing of a more comprehensive purchase and sale agreement." Thus, in this situation, the seller can not enter into another Purchase and Sale Agreement until the present one is "null and void" for whatever reason.

If a seller signs and accepts an offer and later gets a better deal, the seller can't "walk away" from the original deal. If the sellers did, the buyers can use the signed Offer to Purchase and sue for specific performance, and record a lis pendens, or notice of claim, in the registry of deeds against the property. That will effectively prevent the sale of the home until the litigation is resolved.

I doubt the IRS will delve too far into this issue. I would presume (yeah, I know...) that the IRS would consider the dates of signature as their primary concern in determining whether or not you were under "binding contract" on or before April 30, 2010. Again, seek competent tax and/or legal advice in your state.

Nobody wants to give advice becuase we all know the IRS can change their mind about this at any second. I have been lucky so far to satisfy my contigentcies before April 30th, but with writing new contracts this week and next that may not be so easy.

Lenn...your post is a word to the wise.....and wisely presented. Trying to keep things simple in todays Real Estate world is proving to be a full time job and may require a team of pros i.e. attorneys, cpa etc. In regards to short-sales, the results on how it holds up long term are not in yet.

Thank you

When you write "the seller's lender" this would be in the case of short sales. You mention it briefly, but because this is a public post, many reading might need this form of transaction highlighted for the consumer clarity. And a sticky wicket to be sure! Good post as always.

My office has a HBTC Addendum we get signed.

It simply states that the brokers make NO representations as to the principal's eligibility to receive the HBTC and that by signing the Addendum, they agree to consult with the appropriate tax/legal professional BEFORE entering into any binding Contract.

We're not lawyers nor CPAs. I'm seeing mine tomorrow and will ask their opinion on the day the Contract is 'binding' in a short sale transaction.

I just talked to our Legal and they said binding = fully executed contract between buyer and seller. Lender approval is no different than any other contingency.

I told him 100 Active Rainers are discussing. He said that a lot of lawyers are also. :)

Thought provoking article - obviously, based on the number of comments! Thanks for sharing...

The key word being "Binding". It seems to me (though I am no expert) that doesn't occur until all contingencies have been removed. Inspection and financing contingencies removed as well. But, I guess their interpretation probably swings in the wind.

Thank you

lenn, I have been hammered by customers with this same question. I even called a Real Estate Attorney who said it should be between the buyer and seller but he would not commit that to a client.

In other words we will find out in a few months after consumers file.

I think the "prudent man" test would apply. Do the parties consider that they have a accepted offer, regardless of contingencies. I think that prudent people would agree that this it the intent.

However, since the IRS is involved all bets are off as they tend to interpret laws like no one else.

Raise your right hand, "I am not an accountant. I am a real estate agent. Please consult your accountant for tax advice."

Is there ever a straight answer when it comes to Government policy? Interestingly... yours is the first post I've come across for this very important question with D-Day coming.

And yet they are running TV Ads in our area advising consumers to consult a Realtor for more information!

Very good timing Lenn, My clients have a contingincy offer on new construction which expires in about two weeks, and they had questions about this very subject. I have two weeks to sell their house....no pressure!

Lenn, how you can possibly run your business AND consistently provide thoughtful, researched, educational and valuable posts is a mystery to me....but thank you very much for doing it!

Way above my pay grade. Everyone has their own interpretation which usually suits their personal needs. I am curious to see the follow up blogs in July and after. I do not advise on tax matters, it is not an area of expertise. I defer to all the other EXPERTS in our industry.

Wendy. My business actually takes little time. Or, it could be said that this IS my business, at least a part of it.

David. No pressure. I love it.

Mark. NAR is running the ads, not the IRS.

Paul. It may soon be moot.

Linda. Indeed. That's my line.

John A. Right you are.

Carla. Sticky wicket indeed. While this is a public post, it's clearly addressed to agents examining the matter.

Richie. Thanks. I believe that this discourse between agents is helpful.

Jennifer. True and as of this a.m. I began taking notices about the tax credit off my web sites.

Louis. Very thoughtful analysis - - that takes us right back to the beginning.

Agent Aaron. I'd agree if the IRS had clearer language about what constitutes "binding".

Deborah. Right you are. Right you are.

Ted. I wouldn't consult an attorney in this matter. I'd consult a tax specialist.

Scott. That's my fear.

Mary. My pleasure. I think.

Candice. That's funny. I not surprised that the lawyers won't say.

Kyle. Smart thinking.

Lenn, great subject that never entered my mind. Yikes. One more issue to get paranoid about- feels like a state of mind these days!

Lenn - You bring up a very interesting perspective on the tax credit and whether short sales qualify. I guess only time will tell to see how the IRS works this one...

Lauri. HA! No one here is more paranoid about anything involving the federal government.

Christianne. I'd feel better if the IRS had clarified the matter on the form.

THANKS REBLOGGERS

Re-blogged by 4 agents

When it comes to government agencies interpreting anything there will be a problem. Institutions try and violate real estate contracts all the time.

Good advice Lenn in referring folks to a tax pro or, gulp, the IRS website.

Hi Lenn -- Right on. Even attempting to discern the federal government's laws as a lay practitioner is a recipe for disaster. I always point consumers to the appropriate professional.

Too many agents overstep that line and give advice without realizing how important that line is. Do not cross it.

Lenn - what an interesting thought provoking point, though I don't think that the IRS will be dissecting contingencies. THough I tend to think that they'll be just looking to see that the contract is signed byall parties by the end of the month deadline, I will head your words of caution and refer all questions to the appropriaate financial and legal personel.

I have to say I disagree with Leslie's comment of...

"A contract is binding when fully accepted by all parties and all contingencies have been resolved."

If this were true, then nobody could be held to the contract if not all contingencies were resolved. So if I write in that my buyer must apply for financing within 5 days of MA, this logic would mean they could completely disreguard that timeline with no consequences if their title contingency has not been resolved, for instance. That's certainly not the case. They are still under binding contract to do what they agreed to do.

Having all contingencies resolved just means there is nothing left that the transaction is contingent upon. Contingencies do not have to be resolved to make a contract binding. Contingencies are PART of the binding contract. Both parties are still bound by the terms within.

I think this thought process probably comes from years of agents telling their buyers they are not bound to anything until after the contingencies are all past. I suggest simply changing the language used there to say they are still bound to hold up their part of the contract, but that nothing is set in stone and they can still get out of the contract by responding to one of the contingencies.

I think in practice we probably all understand how it works, but in terminology, we may interpret the words differently.

Great info Lenn as always.

I think it is going to have to get interpreted... If that contingency denies the credit, then what about a Due Diligence Period? The buyer can cancel the contract... what if that extends past April 30th... or a Financing Contingency? Or any other contingency that allows the buyer or seller to get out of the contract?

What I CAN agree with is that buyers need to consult THEIR resources for answers... we aren't tax professionals (at least most of us aren't).

very compelling post and I must say that the debate from the comments is amazing. Never thought of it this way!

Looks like both a legal question and an IRS question. In NH the form contract defines what is a "binding contract"... however, one would wonder if the IRS has a different opinion. As many point out, best to refer the client to an attorney, accountant and the IRS.

Next question to be answered is what constitutes a "CLOSING"? Different states may interpret that differently too! Does the deed actually be of record to fully comply with the tax credit regs.

Lenn, like I said on Lola's post - and you agree with the definition of binding, but the IRS can definitely spin it if they want to. But like Aaron said, if there is escrow and it's not binding, then why can't the buyer just demand their money back anytime they want? Because it's binding...but I'm not a lawyer nor a CPA, and I have not given advice on this topic. I would also refer them to the 'experts' for this and let them handle the hot potato!

Lenn - I think this makes a lot of sense. The IRS is going to come to its own conclusions and the IRS and/or tax professionals need to be advising the client.

APR

2010

Lenn -

Okay, you got me. I'm not a tax professional. And I'm not currently playing one on TV.

But I have been a tax consultant in the past. And I can read the IRS website.

I'm not buying a house this year. But I have helped several clients claim this credit....without compensation and certainly with a disclaimer. It may possibly be one of the easiest things having to do with tax returns in many years.

If I were claiming either of the the tax credits this year, I'd plan on getting my sales agreement signed on both sides (and acknowledged where required) prior to the end of the April.

Then, regardless of the type of sale, I'd make darn sure it closed (i.e. recorded) prior to the end of June.

Then I'd plan on attaching the following to my Form 5405 (for the tax credit) and my Form 1040X (Amending my 2009 return) (or my 2010 income tax return when filed) in compliance with the IRS instructions for the credits:

* A copy of the (first and last?) pages of my sale agreement (showing parties, dates and signatures...including the acceptance and acknowledgment) showing the agreement was made prior to the first deadline..

* A copy of the HUD-1 showing the transaction closed prior to the second deadline.

That is all the IRS is asking for. That's all I would send them.

I would not send them a short sale lenders approval. (Any more than I'd send them the new loan lender's approval.)

I would not send them a repair addendum, a sellers disclosure or anything like unto them.

I'd figure, if the IRS wanted to see them, they would have asked for them. They haven't.

Let's give Congress a little credit....for these credits.

After all, they're not the brain-child of someone who "knows nothing of our industry". The author is Sen. Johnny Isakson (R-GA) a former multi-office real estate broker.

In November, Congress wrote this extension/expansion bill the way they did (with two deadlines instead of one) precisely in order to (1) give a deadline for the execution of the agreement and (2) give the 11th hour transactions plenty of time to close without new lenders, escrow companies, and county recorders going nuts in the last few weeks and days.

They had heard about the jam-up the fast-approaching November 30 deadline was creating. They did not want a repeat performance.

They were not trying to make this harder. They were trying to make it easier.

The IRS has been trying to do the same (even as they are trying to stamp out fraud.

For those who are willing to read plain English: They have all succeeded.

I don't think an agent should give a lot of advice about this subject.

But an agent had better find out how this works and make sure s/he executes REALTOR tasks in a timely manner so that a client isn't hanging out there not having met the deadlines.

That's where an agent's concern needs to be focused. That's where you can't blame your non-compliance on some professional with another kind of license.

Hi Lenn! I'm with Bill G. on this one--"Under Contract" means just that--whether or not it had conditions or contingencies to be removed/resolved during the term of the Contract. However, I'm not a CPA and advise clients to confirm with a CPA prior to making a decision based upon my interpretation.

This does seem to be the big debate during these last few weeks of the tax credit offerring. For the CPAs to whom I am referring my clients for advice, I apologize for adding more to their plates during this, their busiest month of the year! They could have selected a better "deadline" month, that's for sure--at least for the CPAs!

Cameron. I'm saddened to send anyone to the IRS web site because, if it didn't answer the question for me, it won't answer it for the consumer. It just relieves me of the liability of giving the advice.

Chris. Of course. However, few will follow that advice. They'll go to TurboTax.

Erica. Not I. Not I. Unless I have a lapse of caution.

Lora. What else can we do?

Jeff. I agree with your analysis. For instance, I never, never, never advise a buyer to remove the financing contingency. Listing agents insist to no avail that we do do but I know that the buyer's EM is at risk for many unknown events without the protection of a financing contingency.

I do consider the contingency of the lender's approval letter more "material" than most routine contingencies simply because the buyer and seller have little to no control over the outcome and I don't trust the sellers' lenders to act with any rationality.

Mary. Thanks.

Lane. We are surely NOT tax pros. I don't believe it's going to be interpreted. Fact is, if the seller's lender denies the approval, it's all over. The question is, if the seller's lender approves the sale after the April 30 date, does that affect the tax credit. There are opinions all over the place.

Renee. Thinking can often be dangerous.

Joan. The first question has no clear answer. However, as to what is a closing???? My recollection is that a deed does NOT have to be recorded to be a legal transfer. Once the buyer tenders the money and the seller signs the deed, the "deed is done". Recording is perfunctory and probably for the tax man.

Frank and Sharon. Which expert???? Surely not a real estate agent. Of course, we can synopsize the contract for our buyers and sellers, but we can't give tax advice and this question surely rises to the level of tax advice.

Christine. Indeed. I simply want agents to know that if the question comes up from a buyer, they should NOT opine.

Jim. I believe you win the contest of what to do and why.

1. Give the IRS what they requested.

2. Don't give them any more than they requested.

All that said, the question would have been moot if Sen. Isakson had simply required that the IRS include the matter of Short Sales in the instructions. The fact that the IRS is silent in the matter of Short Sales is what is causing the question in the first place.

No offense to Sen. Isakson, but has he practiced real estate brokerage in the uncertain world of Short Sales. Sen. Isakson has been in Congress since 1999, long before the Short Sale debacle.

Debe. They could have picked a better month for the consumer and the IRS too.

One of our agents at KW beat me too it.

Hi Everyone - I talked to Bernie at MAR legal hotline. As per Bernie, if you enter into a contract prior to April 30th with the buyer and seller, even without bank approval and you close prior to June 30th, your client can get the tax credit. Just fyi.....

Hope he is correct as this is what I have been telling people.

MAR Michigan Associaton of Realtors.

Lenn,

Thank you for your warm welcome to ActiveRain! Just one question: How do you keep up with it all? Wow! I appreciate the conversation on this topic and think that Jim Hale nailed it.

Missy, that is exactly the same thing that I have heard from several short sale agents that I have worked with. Hopefully that is what the IRS says about the matter as well because it is their opinion that really matters the most.

Hi Lenn, You are wise not to try to interpret ambiguous legal language to your clients. I'm not sure how the normal contract contingencies might nix the credit and I won't try to figure that one out, but I have been disturbed by some advice I heard another couple of agents give to short sale buyers. They say that an escrow should be open with a long escrow period the minute an offer is accepted by the seller and submitted to the lender, so that as long as the approval comes before the end of June they would still qualify. I think this is REALLY dangerous advice.

Susan. The dates are safe enough if under contract by April 30, EXCEPT that the average closing tome for Short Sales is about 120 days. GEEZ.

#90. We can only work with what we have.

Randy. Actually, there are five of me.

Missy. That is the operative procedure. My fingers are still crossed.

APR

2010

Thought provoking post. Let's hope this does not turn into a mess and it is implemented in the spirit that was intended.

Wayne. If you have figured out just what that spirit was, let us know.

I have pondered the motivation of the administration for this transfer of wealth to SOME home buyers from the remaining tax paying citizens and have determined that it was for the purpose of getting votes.

What say you?????

APR

2010

I have had this question 4 times in the past two days. I asked the buyers agents to check with their CPAs and attorneys as others here. I agree that it's vague. Thanks for the post.

Dana. Thanks for commenting. Smart move. We aren't tax advisors.

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Lenn Harley, Real Estate Broker, Virginia & Maryland

Leesburg, VA

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Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

Address: Lovettsville, Fairfax, Arlington, Alexandria, Stafford, Woodbridge, King George, Fredericksburg, Leesburg in VA., Rockville, Laurel, Columbia, Baltimore, Waldorf, Frederick, Eastern Shore, Bowie, Harford, Annapolis in MD. , Maryland, Virginia

Office Phone: (800) 711-7988

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Maryland and Virginia real estate agents and brokers serving buyers and sellers with experience. Search listings in Maryland and Northern Virginia and get daily updates of new homes for sale by e-mail. Contact Lenn for a tour of homes. REALTORS available every day for home tours. Homefinders network of experienced agents and brokers includes new home specialists, resale specialists and luxury home experts. We can help you with your home buying needs. Homefinders offers discounted 5% listings for Maryland, Northern Virginia home owners. Experienced agents helping buyers and sellers in the Washington Metro area since 1985.

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