$8000 Tax Credit and Short Sales
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Lots of people have been asking about when do you have to have a deal signed and then when does it has to close to be eligible for the $8000 tax credit.
I am not an attorney nor do I play one on TV. This is what I have read and heard from my mortgage broker friends.
A buyer have a fully executed contract in hand by April 30, 2010 for the transaction to be considered eligible. Then the deal must close by June 30, 2010 in order to take advantage of the first time home buyer tax credit.
The primary key here is that you need a “fully executed” contract. The typical REO or retail sale that gets done signed by April 30 should have no problem skating across the finish line. Conversely, I bet most short sales will not make it.
Many short sales will agree to your offer, sign it, send it to the bank for approval and then wait. If you as the buyer do not receive a signed copy, you do NOT have a fully executed contract in the state of Minnesota. The way to fix this is to demand that the seller sign the contract and give you a copy, but make it contingent upon bank approval. The contract can still be “subject to bank approval” for it to be binding and fully executed. That is simply a condition of the contract like an inspection contingency.
I know you don’t want to hear this, but I believe that it is already too late to make an offer on a property that is a short sale and get it through the bank’s short sale department before June 30. Some agents may disagree, but every short sale I have been involved in takes at least 4-6 months to close. You would have needed to get an accepted offer on one January 1 or earlier to feel good that it will probably close by June 30 (even then it is a crap shoot!).
We have had a lot of questions in regards to this. Time is really running out for buyers though if they plan on offering on a short sale and closing before June 30th. Will be interesting however to see if the HAFA program speeds the process up. Thanks!
I have a random “what-if” question for you:
Prior to April 30th, I put out an offer on a short sale, and had the seller sign the offer around March 28th. It was then sent to the lender for approval. Technically, I am still “in contract”. Even though the lender didn’t come back with their approval until after the 30th, (more like May 12th) my contract DID HAVE the lender’s approval as a contingency to the original contract.
However – my question is this: the lender came back asking for about 4,000 higher than our offer. We agreed (we love the house and its still a great deal) – does this change the original contract – the one that the seller first signed in March? Can it cancel the tax credit due to a “change” in the contract? All I get are “hopeful” answers from my mortgage and real estate agent. I was hoping you could shed light on it. I was excited to see that my agent did right on the contingency, but I’m still worried about the offer change. Regardless, we should close the first week of June. It would just be nice to know 8k is still a possibility. Thanks!
Wow. Not sure on that one.
You had a signed contract so it was fully executed before the deadline. I suspect you are OK, but you should check with your accountant.