Can First-time Buyers still get Obama’s Tax Credit?

In First-Time Buyer, forclosure, foreclosure, home sellers, miami beach, mortgage, real estate, Tax Matters on September 11, 2009 at 12:23 pm

According to an article recently published by the Florida Association of Realtors (, and as stipulated by the Obama Administration, there are now less than 12 weeks left before the end of the deadline  to qualify for the Tax Credit.

The deadline may be confusing to some because it is often quoted as being BEFORE December 1st. However, this simply means that all closing documents must be dated NOVEMBER 30th or earlier. If you close one minute past midnight on December 1st…you’re out of luck! (not that anyone would be up working that late).

It is important for buyers looking to take advantage of this tax credit to sit down with their Realtor (remember, not all real estate agents are Realtors – members of the National Association of Realtors, who adhere to a strict Code of Ethics), for a Buyer Consultation and specifically ask, how they plan to help you achieve this goal if this credit is of primary importance to you.

Otherwise, you may have to prepare to fore go the credit in lieu of homeownership today at still historically low interest rates (which will save you tens of thousands over the life of the loan), and historically low prices. In addition, we are close enough to the end of the year that you could still take some deductions when you file your 2009 taxes (remember to consult your tax professional), so missing the credit may not be ideal, but it isn’t all bad either.

Nonetheless, here are a few pointers if you are adamant about getting that credit AND enjoy the other benefits of homeownership outlined above.

First, understand that there are three broad categories of residential properties available for sale to you today. These are:

  1. Properties available for sale which are not in any sort of distress. These are straight, “regular” sales from sellers who just need or want to sell today but who are in neither of the following two categories.
  2. Properties available for sale which are in Pre-foreclosure or could soon be. These are properties for sale by the current owners who for some reason can no longer afford to keep the home (typically because of loss of a job, less income due to less hours, illness or any number of other issues), have fallen behind in their payments and are no longer making payments. Typically, these owners owe more than what the property is worth in today’s market and the only way for them to sell is via a process known as Short Selling (getting their lender to accept less than what it is owed to them as payment in full).
  3. Properties available for sale by sellers who have taken the property back at auction after a foreclosure process. These sellers could be institutions (typically banks), or others who now own these properties taken back during the foreclosure auction sale.

Each of the above offers advantages and disadvantages for buyers. For instance, in the first group above (which I will call regular sales), these sellers are not at risk of loss due to foreclosure, nor are they holding an asset they don’t want (banks aren’t happy holding property that is producing no income and greatly increases their potential liability). However, many are still motivated to sell today, even if it means not getting as much as they once could, or as they might if they held on to the property for a few more years while we wash away the sins of recent years so to speak. These sellers are ready to act now and their purchase may be finalized in a matter of a few weeks or even days in some cases, rather than months. These probably offer today’s buyers the best chance of still qualifying and getting the tax credit because they can do their search process, property selection, offer, due diligence and close in time and before the November 30th deadline.

The second group belongs to the group of distressed sellers in a pickle today looking to sell and have their lenders agree to take back less than it is owed to them on the mortgage note. The only way to sell these properties is via a Short Sale process. This process is very similar to the one briefly described above except, the seller’s lender must approve the sale or agree to the short pay. The process is similar from the search process, property selection and offer to a great degree. However, at this point, begins a period of time required by the seller’s lender to evaluate the offer in light of other factors surrounding the transaction. There may be more than one lender involved (if there are more than one mortgage or encumbrance against the property), there may be insurance issues (pmi or mip), and other liens and other factors to consider. This approval process could take as little as a few short weeks (I’ve had short sales approved in two weeks), as they can take months (I’m currently negotiating one with Bank of America that took 30 days just to get the documents received and nearly 2 months into it, it is still being processed). This process can heavily weigh on a buyer’s patience and prohibits the market to recover faster from this fiasco. After acceptance, the clock begins to tick again and all the provisions under the purchase offer contract such as inspections, appraisal and others begin to take place until closing is achieved. However, this period of uncertainty created during the approval process, can now easily stretch the closing well past the November 30th deadline. This is a shame because these property sales often present a great opportunity for buyers to buy a great property, at a deeply discounted price. In addition, many of these properties are still occupied by the owners who still take care of the property, allowing the buyer to get a great deal.

Finally, there are the foreclosed properties or REOs (Real Estate Owned). These are those properties which have already been through the foreclosure process and have been taken back by the lender at auction. Although often priced well below market, many lenders and their asset managers don’t initially place the property for sale at super bargain prices. This is specially true if the condition of the property is at least decent. However, as time passes without a contract or for properties that require extensive work (beyond a little landscaping and some paint and/or carpeting), they are ultimately priced well below market to reflect the seller’s (lender’s) motivation to sell today. The advantage of these properties of course, is their significantly lower price. However, these are often not for the faint hearted. These properties typically need more than TLC and are very likely to have some code violation (some minor, others not so easy to remove without greater expense). These are typically better deals for investors and those with plenty of cash to acquire the property, make the necessary repairs and pay the fines and fees required to clear the code violations. Buyers requiring financing typically don’t stand a chance when competing to buy these when there are multiple offers, because they often compete against cash buyers. Also, because of the amount of work required, regular (conventional) financing will typically not work to buy these properties because they will not pass inspections and the lenders will not take the risk.

There is however a FHA program called Streamline FHA (203k) which will allow the buyer to borrow up to 125% of the property value or up to $35,000 which can be used for repairs. Again, a great program for regular sales or short sales, not so much for foreclosure sales, and specially when competing against cash offers. This program has a lot of requirements and takes longer to close, but provides a way for buyers to get a great deal and hire licensed and insured contractors (which could be from major stores like Lowe’s and Home Depot), to perform the work (may even be as complex as roof replacement or as simple as water heater, central A/C, carpet or kitchen/bath cabinet installation). When it’s all said and done, they’d own a great property, repaired to their liking and to enjoy for years to come.

Buying a condo throws another monkey-wrench to the transaction because the condo building also has to qualify for a mortgage (in addition to buyer qualifications), based on current FNMA and FHA guidelines. You must work with a qualified lending professional and Realtor to make these work for you.

For many, dealing with with these matters may seem confusing and so, now more than ever, Buyers must hire a qualified Realtor, preferably one who is also a Certified Distressed Property Expert (CDPE – to find one near you), to guide them through this maze.

I’d welcome any questions, comments or remarks, and thank you for reading this blog post.

If you know someone in financial distress who could use the advise of a professional to sell their property and save their credit, there are 9 ways to avoid foreclosure and they can be explored in a special report I can make available to them. Just make sure they read this post or write to InfoPack@SellMyBeachHome.Info to order a copy. Otherwise, they can call 866-520-SAYL (7295) and select extension 9504. This line will work for calls originated within the USA or Canada (ONLY – others outside these areas, please send us an email), to listen to a recorded message available 24/7 (speak to no agent), offered by this writer as a public service.


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