FRAUD ALERT - Advice on the $8,000 first time homebuyers Tax Credit - Do you chance it???

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

 

Clarification before you read : Yes, you can use the tax credit as part of your downpayment. I have stated this before. If it comes from non-profit organizations or Federal, local, or state agencies. I mentioned this in my other blog, in the bullet points . But just from the few comments and some on facebook, you are missing the POINT. It’s fraud to apply for this tax credit through the IRS, prior to actually buying your home, if you receive the monies from the IRS DIRECTLY.  Please stop reading into HUD, downpayments, etc, etc and understand what is considered FRAUD by HUD and many lenders.

 

 

 

2nd UPDATE9:01 pm 5/16/09 :  I am not here to throw people under the bus. But I am getting comments and e-mails telling me that this is allowed or that some clients have done this, one who even works for the IRS, and that they would never do anything illegal. Two things on that…

 

1st You assume this. Do you know how many people that have worked for the IRS, the trade commission, stock brokers, lenders, and loan officers that have a huge responsibility & should be ethical… yet these same people in these industries that have committed fraud.

 

2nd I never said that it’s FRAUD in the eyes of the IRS.  But Lawrence Bland, comment #6, makes this statement. FRAUD -  I said that HUD and many investors, lenders, and underwriters have stated that this is fraud. And if you think about it, this is what matters most, because without them, the deal doesn’t close anyhow.  I know my blog is long, but Ken Cook summarizes it well in his comment.  Ken Cook’s Comment

 

 

 

taking the plunge - fraud

Do you take the plunge, possibly jeopardizing your career?  If a loan officer told you to jump off a bridge, would you?  You'll see my point below.

 

Who do you listen to?  Where do you get your information from? It's worse now than ever before. I once was able to tell a borrower or a realtor, if you didn't believe me, go call up 5 other loan officers. I would say this, because you would think that you would get at least 3 to 4 people giving you the same answer. PEOPLE.... this is not true anymore. I had two separate examples that took place that 3 out of 4 loan officers gave the same information that was 110% incorrect. Rut row... there goes my theory out the door.

What about all of this hype over the $8,000 first time homebuyers tax credit?  It's gotten way out of hand. I wrote this blog, Tax Credit for downpayment, it's GONE, the story of the $8,000 tax credit. You need to read many of the comments.  Here is a great example of what I am talking about.

 

 

 

Here are 2 examples from comments that I received by a realtor. Keeping in mind, I am not trying to throw them under the bus, but to help educate and bring awareness. How else do we learn and possibly not make mistakes that could be so costly.

 

Example 1 -

 

"From my understanding from 2 CPA's and mortgage lender that it CAN be done by applying for the credit prior to the closing with an accepted contract.  There are risks like not closing before November 30th.  But this can happen."

OUCH -  No, double ouch.  Okay, so she was able to talk to 2 CPA's and a loan officer that both confirmed this. Okay, so it might be legal from their standpoint. But what about HUD's standpoint and from many lenders and underwriters. Don't they actually have the final say in all of this?  YES, they do !!!

 

 

Example 2 -

"I just wrote up an offer and the loan officer told me that my buyer would be using some of the tax credit for the down payment. So I'm not rescinding my blog post just yet."

My question to this realtor...  What about your fiduciary responsibility to the buyer?  I received an e-mail from this person after asking the same question. Their response?  They know the letter was taken down, but they are looking for an official statement. Huh?  You think HUD or the NAR is going to say, "we screwed up."  ??? Why not call HUD yourself, be proactive.

 

 

In any case, let's study what the IRS says. Here is Form 5405 - The first time homebuyers tax credit form

 

Tax credit form 5406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As you can see, letter be asks for the date aquired, but tells you to read the instructions. So let's go to that part of the instructions.

 

tax credit instructions

 

 

Wow... enter the date that you acquired the home.  Acquired?  Wouldn't that mean when you bought it and not when you are going to buy it? It states this right under the first sentence. So why are some CPA's, accountants, and loan officers stating that you can get the money before you buy, while still submitting this form. ???  Inquiring minds want to know.

 

Here is my opinion and some facts.  And you can ask such loan officers as Tom Burris, Ken Cook, and Gerry Suarez, because they have checked also with HUD and with several underwriters with different lenders. Who says what....

  • HUD says that it's illegal and they recognize this. But wait, some lenders have allowed this and my buyer has already closed. Keep in mind that HUD still has to insure these loans, so maybe the "shit" will hit the fan in 6 months or so, since this is all still new.
  • Underwriters - Gerry and myself have spoken to several underwriters at major lending institutions that have said they will not do this type of loan, if the buyer had received the monies from the IRS, if prior to closing on the home. Not unless it falls into another category. Those categories I have listed in the middle of this blog. Tax Credit - what is allowed prior to closing - Please go to my bullet points in this blog.  This is what is legal and how.

 

 

LINK for - TAX CREDIT FORM 5405 and instructions

 

 

We need to stop the bad press. As you can see, this has gotten out of hand and everyone seems to be an expert. Yet, nobody is speaking to the correct experts. Be proactive. If not sure, call HUD yourself. Call a trusted loan officer/expert and not one that claims to be. Again, keep in mind that you can use the $8,000 tax credit for the downpayment and get these monies before you apply for the tax credit with the IRS.... BUT... this in regards to specific circumstances that I have mentioned. And if you get the money the correct way from other sources. This blog is not about this. Please read the other blog.  What this blog is about is that if you don't get the money from other sounrces prior to closing, and that you just apply for the money itself, prior to closing, this is the FRAUD part. Please understand the difference. Many of the commenters below have confused themselves on these issues.

Since I was trying to clarify several things, Tom Burris made this comment, which details what I was trying to convey. Please read : Tom Burris's comment -

 

Lastly, I want to share this which comes directly from the IRS site in regards to the $8,000 tax credit : This was supplied by Matt Stigliano - The IRS questions & answers :

Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.

A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.  IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.

 

 

Lesson of the Day :   When you hear real estate related news stories, maybe you should check the sources and double check the stories. I could give you 10 examples of this just from what I have read in the last 5 months. As we say, "Buyer Beware"....  how about we say, Realtor/loan officer Beware !!!

 

LEGAL WAY of obtaining your tax credit before settlement. Please read : $8,000 First time homebuyers tax credit informartion. Please go down about 1/2 way, next to the 1st picture with the calculator and the money showing. It talks about reducing your deductions.

 

 

My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish - What's allowed and what's not allowed :

 

 

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 9 times:

Re-Blogged By Re-Blogged At
  1. Jim & Maria Hart 05/16/2009 05:24 AM
  2. Matt Stigliano 05/16/2009 06:28 AM
  3. Sandy Noll 05/16/2009 06:30 AM
  4. Ann Allen Hoover 05/16/2009 06:34 AM
  5. Lenn Harley 05/16/2009 11:03 PM
  6. Cindy Jones 05/16/2009 11:55 PM
  7. Marzena Melby 05/17/2009 01:16 AM
  8. Tom Burris 05/17/2009 01:24 AM
  9. Brian Burke 05/17/2009 06:41 AM
Topic:
Lending / Financial
Location:
Florida Broward County Fort Lauderdale
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
Realtors Needing the services of the Lending Powers
The FHA Mortgage Group
Tags:
fraud
fha loans
tax credit
buyers tax credit
first time home buyers tax credit
8000 tax credit
8000 first time home buyers tax credit

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Ambassador
672,738
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Jeff: Thanks for the post and clarification. I remember when I mistakenly blogged about this last Fall and you and Gerry were kind enough to correct me. Of course, we'd all like to see a formula for buyers to be able to utilize the tax credit and I know they're trying to work on it. But, for now, the borrower needs to have some skin in the game. And that's not a bad thing! Take care.

May 17, 2009 02:57 AM #55
Rainer
43,172
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Hay Jeff,

Im on vacation and still following this "drama"...Omg....why would ANYONE put the cart before the hourse, and RUSH the information out there before it is fully understood...Oh yeah, the Fed Gov has been doing it for years...sorry..I forgot.

And regarding the comment about BUILDERS...WHO the heck knows what they are doing...They could be giving the buyer and 8000 closing cost credit for cripes sake, and calling it the 8000 builder tax credit...who knows!   It's kinda like the diamond market,  mark it up, and give em a credit! YIPEE!!

Even if they DO get this worked out, why would we allow this credit in a loan on an FHA loan vs. anything else anyway?? I thought the WHOLE POINT was to get AWAY from borrowers not having any real money into a deal!  It still gives them the ability to walk away without any TRUE financial obligation.   What they should do, is PENALIZE them for walking away from a no downpayment or low downpayment program!  LOL

Following this closely!  It is clear, people are freaking out!  Everyone should listen to YOU, TOM BURRIS, and definitley Ken Cook !!!  Great info!

Darin

May 17, 2009 03:50 AM #56
Anonymous
Donne Knudsen

Jeff - In researching this plan, I did not call HUD or speak with any HUD reps.  I called and spoke with many of my FHA lending sources as well as a few city, county and state agencies that are currently offering down payment assistance to low-medium income first timers.

It was in talking to one of my FHA lenders that they spoke of a program that they are trying to develop with one of the state agencies.  In speaking with a rep from this agency, they mentioned that they are in the process of putting a program that will be available to participating lenders to offer to eligible borrowers.  The program they are working on will be some sort of short-term bridge loan.

Once again, I did not get my info from HUD or any HUD rep.  Having learned my lesson earlier this week that HUD, and to some degree FHA, are not the ones that will be turning this plan into an actual program.  It is participating lenders and/or city, state and/or state agencies that will be the ones to put this plan into action.

May 17, 2009 04:54 AM #57
Rainmaker
662,099
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Frankly I'm in agreement with what HUD has decided on. I don't think a buyers should be able to use the $8,000 for a down payment.  The buyer should have some "skin in the game" as the footballs saying goes before getting any money.

Patricia Aulson/Portsmouth NH Real Estate

May 17, 2009 06:18 AM #59
Rainmaker
394,850
Elizabeth Cooper-Golden
Huntsville Alabama Real Estate, (@ Homes Realty Group) - Huntsville, AL
Huntsville AL MLS

Jeff, You are a lifesaver, as someone stated above.  You always write so that we can UNDERSTAND all of the changes.  I appreciate it so much. 

It is so hard to keep up with change, after change.  I'm almost afraid to give buyers any information about mortgages anymore.  I wish you were licenced in Alabama!  Getting anywhere with that yet?

May 17, 2009 07:07 AM #60
Rainmaker
124,075
AMBER NOBLE GARLAND - Top Real Estate Expert, Property Tax Appeal Specialist & Author
Strategic Marketing Expert & Relocation Specialist Serving New Jersey and nationwide! - Marlboro, NJ
- The Agent You Can Trust To Deliver REAL Results!

Well, after reading this post if they didn't know the "real deal" they sure as heck know now! Nice one Jeff.

May 17, 2009 02:08 PM #61
Rainmaker
1,767,001
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

This seems so clear to me ... but we all know how quickly misinformation can spread online. I have a feeling we'll be putting out these fires right up until November 30.

May 17, 2009 03:58 PM #62
Rainmaker
99,135
Gerry Suarez Jr.
Jet Home Loans NMLS 1660135 - Maitland, FL
FL Mortgage Guru

Jeff,

This has got to be one of the best posts you've ever written, and not just because you mention me-lol.

You really did your homework on the 5405 and it's sure hard for people to question the accuracy when it's in an IRS document. I noted in your other post I will be calling the Memphis Area HBA today and see if I can get the details of their program. You know of the program I'm working on down here, and that it's on the up and up.

Great work on this very timely series dude. Thanks for the recognition and I'm glad I was able to help.

Gerry Suarez, Jr.

Your FHA Loan Pro!

May 18, 2009 12:45 AM #63
Rainmaker
188,991
Jeanna Martinez
RE/MAX Access - Schertz, TX

Jeff - Thank you again for clearing up so much confusion!  I first heard about this from a homebuilder sales rep...I wonder if they are still trying to do it?  I am glad I have been keeping up with your (and Matt's) blogs!  Have a great week! 

May 18, 2009 06:49 AM #64
Rainmaker
16,473
Janice Cooper
Long & Foster Real Estate Inc. ~ C: 609-694-3622 New Jersey - Medford Township, NJ
Broker Associate, ABR, ASP

Jeff; THANKS!  ~ JC

May 30, 2009 02:19 PM #65
Anonymous
Jaishree Zilpelwar

Thank you Jeff, great information...

I read somthing today (5/30/09) NYSAR email (Realtor.org), I will copy it so you can see...I love to hear your comments..


Daily Real Estate News  |  May 29, 2009  |   Share HUD: Tax Credit Can Be Used on Closing Costs
FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment............

May 30, 2009 03:21 PM #66
Rainer
118,297
Roger Watland
Roger T. Watland Associates - Brooklyn Park, MN

Here is a story, similar to the May 29th Realtor.org story

http://www.builderonline.com/mortgages-and-banking/breaking-news-borrowers-with-fha-mortgages-can-use-tax-credit-at-closing.aspx

There has been an incredible amount of flip flopping on this issue.  I think I will advise my borrowers to wait for additional clarification that only the dimension of time may bring:)

May 30, 2009 05:02 PM #67
Anonymous
Ginger Moore

Jeff,

Great blog!  I will tell you that my son,a first time buyer,  recently purchased a home in feb  2009.  He has just received the tax credit (3 mo later); so you are right, from our point of view. He did not get this money for about 3 months after home was purchased.  I am also a new loan officer. I love all the relevant info you are sending out! So informative! Keep it up!

May 31, 2009 01:17 AM #68
Rainmaker
131,417
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great post.  You've done your part to keep agents, brokers, and consumers out of jail.  If only people will read it.

May 31, 2009 05:41 AM #69
Rainmaker
1,558,909
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Always with the drama! No wonder we can't get the real estate market going! Let's do it legally and be sure we don't give out the wrong information!

May 31, 2009 06:18 AM #70
Rainmaker
1,431,497
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Thanks for the good info.

May 31, 2009 10:52 AM #71
Rainer
74,375
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL

As always, keeping us informed Jeff - As a mortgage professional that gets questions on this issue nearly every day I appreciate all the (accurate) info I can get.

Jun 01, 2009 02:36 AM #72
Rainmaker
519,075
Harrison K. Long
HomeSmart, Evergreen Realty - Irvine, CA
REALTOR , GRI, Broker associate, Attorney

Jeff ... thanks for clarifying. The First time homebuyer $8,000 tax credit has been AMENDED - May 29th, 2009 - Buyer, beware !!! You still need 3.5% of your own money for the down payment. It can't come way of an upfront loan through the tax credit.

Keep up the good work.

Jun 01, 2009 03:20 AM #73
Rainer
24,650
Debra V. Edwards
edwards builders and realty, inc. - Cashiers, NC
Realtor/Builder, Cashiers, NC., Highlands, NC., Glenville

Thanks Jeff, for opening my eyes....FRAUD sounds like such a dirty, word. 

Aug 31, 2009 11:37 AM #74
Rainer
118,327
Ginger Moore
Wilkinson & Associates Realty - Gastonia, NC

Hi Jeff, thanks for explaining all this information! You are right, we need to be proactive about this; call hud if necessary to get the real facts.  thanks for sharing

Aug 31, 2009 12:01 PM #75
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