200,000 Homebuyers Stand To Lose Tax Credits
In order for first time homebuyers to realize the significant $8,000 tax credit, eligible transactions must close on or before June 30, 2010. Those homebuyers who were engaged in short sales or in foreclosure acquisitions and who planned on receiving the tax credit stand to forfeit the credit if they do not close on time. In turn, this stands to jeopardize some 200,000 residential sales.
Unfortunately, lenders are still slow in closing short sales. While procedures are more uniform than in the past, unexpected delays continue to take place. The delays in decisions by lenders are likely to cause more than 200,000 buyers to lose their tax credits.
Foreclosures still take too long to close. The main reason is that home inspections required by lenders bog down the closings. Very often foreclosed properties need repairs before the new lender will close. With either short sales or foreclosures, delays can set the closing process back as long as six months.
Short sales generally close two to three months after an acceptable offer is made. For those buyers that expected to close earlier and capture the tax credit, the sellers will lose their contracts. Reversals of these contracts will cause many sales to fall through. The distressed housing market can hardly afford to lose 200,000 existing sales.
As a result, Congress is considering extending the closing date on contracts signed on or before April 30, 2010. The new closing date would be extended from June 30th until September 30, 2010. If Congress fails to act in time, most of these residences will end up back on the market.
Unexpected delays in the appraisal process have also slowed finalization of the eligible tax credit transactions. As it is, the Obama Administration is already under pressure to resume the tax credit or similar legislation to give homebuyers another tax incentive.
The vote on a possible extension does not appear to be a sure thing. As usual, the political atmosphere in Washington is mired in infighting. The biggest loser stands to be the housing market, which hardly needs another 200,000 homes back on the market.