Dean Graziosi | Dean Graziosi Real Estate | Dean Graziosi Investment

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 30^th 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. 

Washington lawmakers left Capitol Hill without passing an extension of the 2009 First Homebuyers Tax Credit.  Lobbyists are busily trying to expand the scope of the 2009 bill, which ends on November 30th 2009.  As of August 2009, any property closing after November 30th is not entitled to the $8000 tax credit.

In the past 12 months, two bills have come under consideration at the House of Representatives.  The National Association of Realtors, the largest trade organization in the United States with 1.2 million members, is strongly advocating and extension of an expanded bill.  NAR members are lobbying members of the House Ways and Means Committee and the Senate Finance Committee.

The NAR is joined by the powerful National Association of Home Builders in efforts to extend the 2009 bill.  The Home Builders are addressing a new tax bill including extensive credit modifications with congressional leaders in their home states.  The hope is that increased media coverage will pressure firm action.

Chairman of the Senate Banking Committee, Chris Dodd, has teamed up with Georgia Republican Senator Johnny Isakson to sponsor a joint bill extending the current format for another year and broadening the tax credit to $15,000.  Other possible adjustments could include expanding the credit to any homebuyer rather than just to first-time homebuyers.

Homebuyers considering delaying a purchase may want to re-think that idea.  If the muddle, similar to health care reform, on Capitol Hill continues, the only sure thing to expect is the unexpected.  Most first-time homebuyers are applying the old theory that a bird in hand is worth two in the bush.  The 2009 $8000 tax credit represents a significant boost form its predecessor, the 2008 credit, which required repayment.  This is not the case with the 2009 tax credit, which is expected to assist 350,000 first time homebuyers purchase their first home.