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$8,000 Credit Vs Short Sale...Danger Zone?

By Frank Wible

Real Estate Agent with RealEstateAdvisor.Pro

March 17, 2009 01:07 AM

On my radio show last night we hit on a topic that I think should be a major concern for all agents. The conversation was; if a first-time home buyer attempts to purchase a home tagged as a short sale and it does not close in time to qualify for the tax credit. The buyer, looking forward to purchasing the property while calculating the current tax credit ($8,000) as part of their buying budget.

Some months later, and the short sale still not approved, the December 1, 2009 deadline date passes. This buyer has lost eligibility to receive the tax credit! Who is liable? What happens now? It’s important to educate your buyers that this risk is real!

As smart as our Government thinks they are, I am almost certain this issue has not been addressed. I will personally send a copy of this letter to Washington voicing my concern on the issue.

In the meantime, I think it’s important, as buyer agents to inform the buyer of the risk that is involved. Maybe not so much today (March 17, 2009 as I write this), but with the passing of each month the risk level gets higher. By the time we reach August and September, the risk almost becomes a reality.

As seller agents, we should add an additional clause to our short sale addendum spelling out the risk for the buyer. This way, all parties are aware before entering into the agreement of sale.

Food for thought? Absolutely! And as I finish off this post, I’m not even sure how this can be addressed. What I do know is this will not stimulate the sale of pre-foreclosure homes that require a short sale. And these are the homes the Government should want off the market.

Comments? Suggestions?

Frank Wible
RE/MAX All Pros
www.ShortSaleNJ.com

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Sherry Mills

Tarheel-Realty II - Statesville, NC

In my opinion, the tax credit should be honored as long as the transaction is still open.

Mar 17, 2009 01:12 AM

Matt Listro

National Credit Fixers - Matt Listro - Vernon, CT

Your Credit Repair Expert

My advice would be to add a "time is of the essence" clause to the real estate contract. The clause would say the penalty for not closing by Nov. 30th would be $8,000 (instead of the FNMA standard $100 per day).

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Mar 17, 2009 01:14 AM

Matt Listro

National Credit Fixers - Matt Listro - Vernon, CT

Your Credit Repair Expert

I just had to rspond again - sorry -

SHERRY - please be real. The gov't is going to grant exceptions to go past Nov. 30th as long as the transaction is "still open". Sorry but that is a lame idea. What about the buyer who wants to buy now but can't get qualified. Can they write up a contract to close by Feb 10th 2011 and then be able to take this tax deduction? Please - that is just a ludicrous idea - sorry to be harsh.

Mar 17, 2009 01:18 AM

Mike Sackman

MAS Real Estate Advisors - Beaufort, SC

Realtor, Broker ABR, CRS. Closer!

I think it would be part of the Buyer Agents due diligence to be aware of the ramifications of the UN-timeliness in a short sale response. Short sales and foreclosures aren't always the "best deal" for a buyer, and the situation you brought up is one of them.

I hope that the powers to be will recognize the problem and say any property "under contract for sale" prior to January 1, 2010 will be allowed to use the credit....

Mar 17, 2009 01:24 AM

Mike Sackman

MAS Real Estate Advisors - Beaufort, SC

Realtor, Broker ABR, CRS. Closer!

Matt "the cat", I had to respond to your response to Sherry. Your response was as "ludicrous" as it gets, I don't believe there has ever been a contract written that a seller excepted with such a ridiculous timeframe for an UNQUALIFIED buyer. Stick with credit repair.....

Sherri, I'm with you. Under contract = tax credit

Mar 17, 2009 01:31 AM

Stephen Graham

Inactive - Atlanta, GA

Good thinking. Yes, this is the type of experience which leads to advice, and that becomes an asset for a buyer. These types of nuances associated with real estate transactions take experience to uncover. Unrepresented buyers take a huge risk.

Mar 17, 2009 01:36 AM

Frank Wible

RealEstateAdvisor.Pro - Apollo Beach, FL

Real Estate Services

As a shorrt sale agent, I can assume that my business will be DEAD after September for 1st time home buyer type homes. Not trying to be negative, but I won't show a short sale to my 1st time home buyers that needs that tax credit...(after September). It's just not reasonable to think they will make it!

Mar 17, 2009 01:55 AM

Mike Sackman

MAS Real Estate Advisors - Beaufort, SC

Realtor, Broker ABR, CRS. Closer!

I agree Frank, but if you can get the home at a price or a prepaid that cancels out the credit, it might still make sense....I don't think I would cancel anything out in this market....

Mar 17, 2009 02:18 AM

Frank Wible

RealEstateAdvisor.Pro - Apollo Beach, FL

Real Estate Services

Great point Mike, but some/most of the 1st time clients I've been dealing with have borrowed the money for the closing and 3.5% down and will pay the family members back with the tax credit. An $8000 discount off the sale price does not really help with that situation.

Mar 17, 2009 02:32 AM

Heather the Realtor Orlando, Lake Mary

LemonTree Realty - Orlando, FL

First Time Home Buyers, Bank Owned Homes

Frank you raise a great topic about that. You are right most will think that they will get the credit and will be banking on it. Thanks for the blog.

Mar 17, 2009 02:40 AM

Frank Wible

RealEstateAdvisor.Pro - Apollo Beach, FL

Real Estate Services

Thanks Heather! I already wrote my letters to congress...I would like to hear the outcome of this one.

Mar 17, 2009 03:21 AM

Maya Thomas, Broker

Tampa, FL

Please see my client recommendations.

I like Sherry's idea and it would be great if NAR got behind that.

I like Matt's idea... maybe with an earlier deadline and a higher than normal daily cost to offset the $8,000 since the big number may not be honored by the lender. Most lender's do what they want whether it makes sense, is good business or is unethical. I would advise my buyer to build an expected $8,000 loss of the tax credit into the offer.

Mar 17, 2009 03:58 PM

Sidney Jimenez

Keller Williams - Miramar, FL

CDPE, Short Sale Expert, 954-665-9449,

FRANK,

It seems reasonable to think of the perils with the tax credit, but all the "help" that has been given to the real estate market in the last 3 years have been extended or enhanced. Remember that last year it was $7,500 incentive that needed to be paid back...this tax credit is a little better. So I say we rely on past precedence and expect this credit to be extended for the next 3 years, at least. And remember, it up to $8,000 or 10% of the purchase price..whichever is LESS.

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Mar 18, 2009 10:08 AM

Melissa Zavala

Broadpoint Properties - Escondido, CA

Broker, Escondido Real Estate, San Diego County

You make a great point. So, in representing those buyers, it would be best to get something going prior to the end of August. This would give a few months to get those short sale transaction approved and the deal closed. Aaah . . . just one more thing to complicate the process.

Mar 26, 2009 05:48 PM

Tracy Royce

Short Sale Arizona, Arizona Short Sale Realtor - Phoenix, AZ

Royce of Real Estate - Short Sale Arizona

Good post for agents to keep in mind about this timeline, and for a reminder to your clients who may be sitting on the fence.

We love doing short sales, most buyers are FTHB, so this is so great for them as well.

Timely post!

Apr 21, 2009 06:50 AM

Real Estate Guy in Madison, Wisconsin

Real Estate Guy

A good point about the timeframe, although i would guess the credit will be extended.

1) As with any short sale, buyers should be consulted about the issues of a short sale. If timliness is important (for occupancy or tax credit) then buyer should chose another home.

2) I have had shorts negotiated in 24 hours. (not all)

And i'm with Tracy, Dec 1 is a wake up call for fence sitters.

Aug 20, 2009 04:27 PM

Fernando Herboso - Associate Broker MD, & VA

Maxus Realty Group of Samson Properties - Clarksburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

Good thing they postponed the deadline. .

Dec 06, 2009 11:49 PM

Ginger Harper

Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC

Your Southport~Oak Island Agent~Brunswick County!

I think it is a good thing. Now we must all be careful