3,190 Washington Home Buyers May Lose Their Tax Credits This Week

Nearly 3,200 Washington state home buyers may lose their tax credit this week. That's just one state's share of the 180,000 U.S. home buyers hanging by a thread onto the latest tax credit.  These are not folks trying to buy a home right now, but people who entered into a contract two months ago to buy a home and qualified for the tax credit. Congress has currently set the maximum closing timeline at 2 months, which would end on June 30.

There's an effort under way to have Congress extend this closing deadline, as it doesn't allow for enough time with many sales today being distressed sales, short sales, and bank-owned REO transactions. The extension wouldn't provide a tax credit to any new buyers, just those who signed their purchase contracts before April 30.

What will happen if it's not extended? For most Seattle area transactions, the $8000 is significant, but not an automatic deal-breaker. Home buyers entered into these transactions knowing the timeline that was available, and should have been aware that they may not close in time to receive the credit.

However, buyers may negotiate for a further reduction in price. The seller could grant a price reduction, or the borrower may just walk away. If the buyer's potential loss of defaulting on their contract (losing their earnest money) is less than $8000, it may be an attractive option for some.

I'm not suggesting that a buyer should default, as each contract is different and there may be more penalties for a defaulting buyer than just losing their earnest money. ...cont'd
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June 28 2010 - Capitol Hill
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...*extended due to Zillow's 2000 character limit*...

Some contracts allow the seller to sue for damages or force the buyer to close the transaction (specific performance). Still, I wouldn't be surprised if quite a few lower-priced home purchases end up being cancelled transactions, as the $8000 could be too much of a financial hit for either buyer or seller to swallow.
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June 28 2010
I bet 80% of the first time home buyers were dealing with an inexperienced agent who told them they could close a short sale in 2 months or less.
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June 28 2010
Definite possibility--I've seen bank-owned transactions go 6 months, even though most are done in 45 days.  Short sales are much longer in general.
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June 28 2010
I really thought they were going to stagger the tax credit removal.  Something like a $1,000 reduction per month for the remainer of the year.  I think that would have been much less of a shock to the system. 
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June 29 2010
Not to mention the 1000's of closings a day that are being postponed due to the flood insurance bill.  I have 2 of my own buyers that are getting pushed past the June 30th deadline because the buyers can't get a flood policy!
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June 29 2010
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Are appraisals completed on shortsales prior to lien holder approval?  If not won't the loan and appraisal contingencies protect the buyers?

It is probably a far worse situation for sellers than buyers.
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June 29 2010
It all depends on how the buyer has written their financing contingency.  Many times the timeline doesn't start until after the lien holder approval, but not in all cases.  Usually the appraisal would happen after lien holder approval, also.  It's a bad situation for both buyers and sellers, but the heaviest weight definitely falls on the seller.
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June 30 2010
 
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3,190 Washington Home Buyers May Lose Their Tax Credits This Week
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June 30 2010 | 7 answers
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