Original Post Date: June 28, 2010
By: Nick Timiraos
Home buyers who signed contracts two months ago are racing to close sales ahead of Wednesday’s deadline to claim a federal tax credit as banks and title companies deal with a crush of closings.
Congress last fall extended a tax credit, worth as much as $8,000, to buyers that signed contracts by April 30 and closed on transactions by June 30. The real-estate industry stepped up calls for an extension of the closing deadline in recent weeks amid concerns that some buyers might miss the deadline after a last-minute home-buying rush led to bottlenecks at banks, appraisal firms and title insurers.
But a Senate bill that included the extension failed to secure enough votes last week and has been shelved.
The National Association of Realtors said that as many as 180,000 contracts that were signed by April 30 might miss the June 30 closing deadline. But it is unclear how many of those sales won’t happen as a result of missing the tax credit.
Homebuilders Lennar Corp. and KB Home said last week that they don’t expect trouble closing tax-credit eligible sales by Wednesday.
Problems are more likely to develop around loans that require added documentation and short sales, where a lender approves a sale for less than the amount owed. Those are more time-consuming affairs because note holders, and not just the buyer and seller, must agree on price. Loan delays have also become more common as lenders adjust to new disclosure and appraisal rules.
“We’re expecting sizeable fallout,” said Stephen Adamo, president of Weichert Financial Services, a division of real-estate brokerage Weichert Realtors. He contended that many deals wouldn’t be completed in time.
A spokeswoman for Wells Fargo & Co. said the company, which has added staff to deal with a rush of loan applications, has prioritized all loans that need to be closed by June 30.
A Bank of America Corp. spokesman said loans that are waiting on approvals or materials from third parties are most problematic. “We’re working around the clock,” says spokesman Terry Francisco. “For the situations we can control, we’re feeling very good about our ability to close most of those,” said spokesman Terry Francisco.
Kevin Malvey, a first-time buyer, had planned to put his tax credit toward badly-needed repairs on the $100,000 home in Charlton, Mass., that he plans to buy with his fiancé. They signed a contract days before the April 30 deadline in order to qualify, and he said that if he missed out on the tax credit, he wouldn’t buy the house unless the seller reduced the asking price.
“If he can’t work with me, I will have to back out of the deal,” said the 27-year-old facilities maintenance worker.
Some won’t have a choice but to go ahead with the sale because walking away would mean giving up a deposit.
Beth Maeyer went into contract in March on a new one-bedroom condominium in Queens, N.Y., with her fiancé. But after a low home-appraisal threatened to scuttle the deal, she changed lenders and restarted the loan process.
Ms. Maeyer, 33, says she won’t walk away from the deal because she has already made a $15,000 deposit and spent thousands more on legal fees. Now, she is anxiously responding to requests for more documentation from her lender. “It’s like being interviewed to work for the CIA.”
Gina Peterson went into contract on a short sale in Orlando, Fla., in February and while the lender has agreed to take a loss on the home, the mortgage insurance company is negotiating with the sellers for a settlement. Ms. Peterson, 53, says she took $8,000 from her retirement savings to make the purchase and had planned to use the tax credit to pay herself back.
While her contract for the home expires on Wednesday, she says she likes the house and hopes to be able to purchase it even without the tax credit. “I’m really on the fence about that one, because I could ride it out, let the bank foreclose, and buy it for $8,000 less on the other side,” she says.
Corrections & Amplifications The tax break applies to home buyers, not mortgages. An earlier headline, “Race Is on to Grab Mortgage Tax Break,” was change