Mesquite NV Short sales and the 8000 first time buyer or 6500 repeat buyer tax credit - what constitutes a binding contract? A signed contract with both buyer and seller in agreement has usually been considered a binding contract. The deadline to have a binding sales agreement to qualify for the tax credit is April 30th. A short sale agreement is between the buyer and seller - the bank's approval of the short sale is a contingency. The question is:
Does IRS consider a short sale contract a binding contract?
Will IRS allow the buyer, who has a contingent contract on a short sale, to take the tax credit if the bank has not approved the sale, even if the transaction closes before the June 30 deadline?
Lola Audu asks the question on her article:
Racing to Meet the Deadline....What Constitutes a 'Binding Sales Agreement' when Your Short Sale Approval Occurs AFTER April 30th?
I get a lot of e-mails. I'm sure most of you do too. However, from time to time, I'll click on an e-mail which looks like it may qualify as spam just out of sheer curiosity. This e-mail arrived courtesy of Wells Fargo, a company which is currently processing tons of short sales. It's excerpted below: (italicized bold portions are my additions)
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April 30 is quickly approaching
The homebuyer tax credits have been pivotal in helping move inventory. At this time, it appears that the government will not offer another extension. Any first-time or move-up buyer who is interested in taking advantage of the tax credit must have a binding sales contract by April 30, 2010 - with the home purchase completed by June 30, 2010. Our team is ready and eager to help your clients meet this deadline.
Short Sales remain significant factors in today's marketplace, allowing more prospective buyers than ever to become homeowners. Because these transactions are more complex, it is imperative that real estate and lending professionals work efficiently as coordinated teams to help our customers. To this end Wells Fargo has created a step-by-step REALTOR® Short Sale Guide, which you can access here.
We are committed to accelerating the short sale process. In fact, for those loans we hold in our portfolio, we have already undertaken efforts to streamline the sales approval process. The majority of the loans we service, however, are owned by other investors. So in many cases, Wells Fargo must obtain the approval of the first and any second mortgage investors. Our goal in these situations is to move the process along as quickly as we can.****************************The Question?
Is the definition of a binding sales agreement referencing the agreement between the buyer and seller applicable when a bank must approve the sale for the transaction to close? In this case, the e-mail seems to intimate that the binding sales agreement includes their clearance of first and second mortgages.
A subsequent call to another senior loan officer confirmed my uneasy suspicion. This loan officer also agreed with the position that states that the sale is NOT binding until the bank signs off on it! There may be a significant disagreement about what constitutes a binding sales agreement for the purposes of the buyer's ability to legally claim the Tax Credit.
What's at Stake?
For the real estate community, a binding sales agreement occurs when there is a binding agreement between buyers and sellers. The approval by the mortgage company is viewed as merely another contingency to the contract.
If the alternate view expressed by some lenders is ever deemed to be the correct definition of a binding sales agreement, this could prove troublesome for many potential home buyers who are staking their claims on homes which will require short sale approvals that may not be delivered prior to April 30, 2010 although they have an agreement with the seller AND may be able to close prior to June 30, 2010.
Curious...
What are your thoughts on this? Has anyone explored this issue with the tax authorities?
Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511.
Mesquite Nevada Real Estate Agent ~ ~ ERA
Virginia Hepp ~ Mesquite Realtor 
Virginia,
I am in the same situation. I just got the contract accepted by the Seller, and I am under the impression that the requqirement is contract by end of april and closing before July 1. If these conditions are sarisfied, I do not see wy IRS would be getting technical
Jon, I can't imagine that IRS has the manpower to check every short sale real estate transaction for the tax credit. I just closed my first short sale listing, and have one more in escrow - Neither buyer qualifies for the tax credit - so no worries for me.
I start every conversation with my clients telling them to get the advice of their attorney or tax advisor.
This article is one of many that I read to learn about short sales - I see more in my future.
I think that it is just a contingency, contracts are full of them, including appraisals, disclosures, inspections, I can't imagine that IRS would get away with excluding a buyer from qualifying for the tax credit based on contingencies.
Virginia:
I think this will be a real issue for short sale buyers, because unless the bank accepts the deal, there is no binding deal.
I recieved information direct from Legal counsel at Arizona Dept of Real Esate and their stance is:
You must have a Purchase Agreement signed and delivered by both parties by April 30, 2010, but contingencies do not have to be met by that date. This includes all contingences, such as inspection and financing contingencies, association document review and SHORT SALE APPROVAL contingencies.
That is what I am telling my clients. I did have a client call the IRS directly and the agent to told him he did need approval by the 30th, but I don't think they understand real estate contracts.
Aaron - I think that a short sale is just a contingency, like an appraisal or selling another home - and that they will qualify for the IRS tax credit - as long as they close by the deadline.
Laura - Thank you very much, I think you are spot on - and IRS will need to define the program.
I also have a signed contract on a short sale. I called the IRS and asked this question, and they said they were getting lots of calls on this. After being placed on hold several times for trips to the supervisor, they finally said: "WE DON'T HAVE AN ANSWER YET, WE ARE WAITING FOR DIRECTION FROM ABOVE". This is going to take more than prayer--the great and powerful Obama must speak.
Jeff - Love your comment!
Actually, it is just a contingency - like a loan approval, home inspection, appraisal, etc. - or isn't it?
I can't wait to hear what the Grand One decides - and will he ignore whoever adivises him on it?
Virginia,
This seems to be a topic only you and I have been willing to broach here on AR. Here is the link to my last post on it and I've just been making sure my customers call the IRS themselves for clarification.
In my market I've actually had Realtors and lenders state in writing that short sales contracts would be qualified for the Tax Credit without third party approval by April 30th. I sure hope it works out that way or a whole lot of people will be getting sued...
Great work staying on top of this!
Gerry Suarez, Jr.
Your FHA Loan Pro!