MeredithMortgageTeam's Blog

June 28, 2010  

Up to 180,000 home buyers will lose their tax credit through no fault of their own if Congress fails to pass an extension to the home buyer tax credit by June 30 when the closing deadline expires.

Included in that number are thousands of home buyers in every state of the union, from 390 in Wyoming to 17,700 in California, according to estimates by the National Association of REALTORS®.Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.NAR issued the following state-by-state estimate of the number of home sales that would be delayed beyond the June 30 deadline; numbers are rounded to the nearest 10:

“We are strongly urging the Senate and the House to act quickly to pass this legislation and ease the minds and pocketbooks of these home buyers,” said NAR President

. “It would be a tragedy for them not to be able to complete the purchase in time to claim the credit.”Golder“These are not buyers who just entered into the market. These are buyers who previously met all the qualifications for the tax credit, but find themselves at the mercy of a workflow jam with lenders or other delays such as lapses in the National Flood Insurance Program, Rural Housing Service, and new home construction, and might not be able to complete the purchase of their homes by the current deadline,” said

Alabama, 2,590; Alaska, 830; Arizona, 5,440; Arkansas, 2,090; California, 17,700; Colorado, 3,390; Connecticut, 1,770; Delaware, 400; District of Columbia, 300; Florida, 14,830; Georgia, 6,270; Hawaii, 710; Idaho, 1,270; Illinois, 7,030; Indiana, 3,560; Iowa, 2, 030; Kansas, 1,840; Kentucky, 2,540; Louisiana,1,800; Maine, 840; Maryland, 2,630; Massachusetts, 3,930; Michigan, 6,470; Minnesota, 3,760; Mississippi, 1,530; Missouri, 3,600; Montana, 760; Nebraska, 1,110; Nevada, 3,800; New Hampshire, 690; New Jersey, 4,300; New Mexico, 1,160; New York, 9,190; North Carolina, 4,890; North Dakota, 460; Ohio, 8,510; Oklahoma, 2,760; Oregon, 2,090; Pennsylvania, 5,830; Rhode Island, 500; South Carolina, 2,460; South Dakota, 500; Tennessee, 3,910; Texas, 15,340; Utah, 1,130; Vermont, 400; Virginia, 3,890; Washington, 3,190; West Virginia, 940; Wisconsin, 2,690; and Wyoming, 390.

Source: NAR

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The home buyer credit provided a federal tax credit of up to $8,000 for first-time home buyers for tax year 2008, the subject of the report. The credit, created to revive the housing market, was later extended to repeat home buyers. The latest credit expired with sale contracts signed as of April 30.  

In response to earlier reports of widespread fraud, the IRS tightened reporting requirements for taxpayers who claimed the credit. But additional controls are needed, the inspector general said. Among the report’s findings:  

•1,295 prisoners, including 241 serving life sentences, received $9.1 million in credits, even though they were incarcerated at the time they reported that they purchased their home. These prisoners didn’t file joint returns, so their claims could not have been the result of purchases made with or by their spouses, the report said.  

•2,555 taxpayers received $17.6 million in credits for homes purchased before the dates allowed by law.  

•10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, 67 taxpayers used the same home to claim the credit.  

“This is very troubling,” J. Russell George, the Treasury Inspector General for Tax Administration, said. “Congress created and modified the home buyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.”  

Taxpayers who fraudulently claim the home buyer credit face civil penalties along with criminal prosecution, the IRS said. In October, a Florida tax preparer was sentenced to 30 months in prison for falsely claiming the credit on clients’ tax returns.  

The IRS is moving quickly to block fraudulent claims and recapture credits paid to prisoners, IRS spokesman Frank Keith said. He added that it’s not always easy for the IRS to identify a tax return filed by a prison inmate. Some prisoners use the address of a family member or a post office box, he said.  

And some prisoners have a legitimate reason to file a tax return, Keith added. For example, they may be owed refunds from income earned before they were incarcerated. The IRS is working with state and local governments to obtain information about taxpayers who are incarcerated, Keith said.  

In a statement, Assistant Treasury Secretary Michael Mundaca said the fraudulent claims identified by the inspector general represented less than one-half of 1% of the credits paid out under the program. “As with all new and expanded programs, we are constantly working to improve implementation, and the IRS has already begun to take additional steps to prevent fraud in this program.”  

NAR Hails House Vote on Flood Bill Extension

A bill to extend the authority for the National Flood Insurance Program, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, was passed by the House today. The bill would extend the program to September 30, 2010.

“We greatly appreciate that the members of House were sensitive to the plight of thousands of home buyers whose loans were being held up since this program expired earlier this year. The passage of H.R. 5569 is a first step toward helping home buyers to the closing table. We strongly urge the Senate to speed passage of this important bill,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox Real Estate in Tucson, Ariz.

Lenders have refused to close loans on properties that required flood insurance, since the insurance program expired May 31. The bill would make flood insurance coverage retroactive and would include all approved applications since that date. The bill now goes to the Senate for consideration.

Source: NAR

Fannie Mae Cracking Down on Strategic Defaults

Fannie Mae announced plans Wednesday to get tough with strategic defaults.

Fannie said that borrowers who default when they are able to pay won’t be able to get another Fannie Mae mortgage for seven years. The current wait is five years. While that might sound like an empty threat, in an environment where Fannie Mae and Freddie Mac are providing most home financing, it may have some teeth.

Fannie also threatened to sue home owners who walk away from their mortgages in states where such deficiency judgments are legal.

The announcement attracted some criticism because of Fannie Mae’s refusal so far to allow hard-pressed borrowers to negotiate a lowering of their principal amount, which is something lenders are now agreeing to after prodding by the federal government. Critics contend the company should try principal write-downs before it penalizes borrowers for choosing to walk away.

Source: CNNMoney.com, Tami Luhby (06/23/2010)