Update: Homebuyer Tax Credit Extension Approved by Senate

On Wednesday, the Senate approved a proposal to extend the closing deadline on the tax credit of up to $8,000 for home buyers.  As you recall from our previous blog the House had already approved the extension.

The proposed bill will extend the date of closing for eligible home buyers to September 30 to give lenders more time to process a crush of applications. 

The Home Buyer Credit can provide up to $8,000 for some first time home buyers and up to $6,500 for certain current homeowners.   It is feared that many of the qualifying home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales.

We’ll be following developments.

Will the First Time Home Buyer Credit Continue?

Earlier this week, the Washington Post reported that the Senate is considering extending the time home buyers may complete their purchases.  The proposed bill would extend the date of closing for eligible home buyers to September 30 to give lenders more time to process a crush of applications.  The extension language is moving through the Senate attached to another bill that would extend a variety of tax breaks as well as emergency unemployment benefits.  

But this extension is only for home buyers that have already signed a contract to purchase a qualifying property by April 30.  Under the existing law, those home buyers must close on their transactions by June 30, 2010.

The Home Buyer Credit can provide up to $8,000 for some first time home buyers and up to $6,500 for certain current homeowners.   It is feared that many of the qualifying home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales. 

If you are a first time home buyer under contract, we encourage you to contact your closing attorney to make sure that the closing does indeed occur prior to June 30, 2010.

When do you go to Due on Sale Jail?

Frequently clients request that real property they own be transferred to a spouse or other family members.  The reasons for the transfer are varied, sometimes for estate tax purposes, sometimes for other reasons, however it is very important to realize that if the property being conveyed is subject to a Mortgage the transfer will most likely violate a provision in the Mortgage called the Due on Sale Clause.

The Due on Sale Clause is a clause in the Mortgage that causes the borrower to be in default under his Mortgage if the property is sold.  It is a contractual right, not a law.  A typical clause will read:  “If all or any part of the property herein is transferred without the lender’s prior written consent, the lender may require all sums secured hereby immediately due and payable.”  The Due on Sale Clause originated in the 1970s when interest rates rose dramatically and home buyers were assuming existing loans rather than borrowing new money from banks because the interest rates on existing loans were lower.

This issue was challenged in many state courts in the 1970s and 1980s and the clauses were ultimately upheld by the United States Supreme Court and Congress thereafter passed the Garn-St. Germain Act which codified the enforceability of the due on sale clause, despite state statute or case law to the contrary. 

But remember that there is no “due on sale jail,” so if a borrower violates the due on sale clause it is simply a contractual violation of the Mortgage.  If violated the lender would be entitled to foreclose on the Mortgage.  The Garn-St. Germain Act carves out several exceptions for owner occupied one to four family residential home loans in which the lender may not enforce the due on sale clause: 

1.         A subordinate or second mortgage;
2.         A security interest in household appliances;
3.         A transfer of the property through a will or estate;
4.         The granting of a short term lease of three years or less;
5.         A transfer from the borrower to spouse of the borrower;
6.         A transfer from the borrower to the children of the borrower;
7.         A transfer resulting from a divorce; or
8.         A transfer into a trust where the borrower is the beneficiary. 

So before you transfer property by deed consult your attorney to discuss if the transfer will cause a default in your mortgage.

Presentation Slides: RESPA Reform

Tom Minor, IV and Karen Ingle have recently presented seminars highlighting the changes in RESPA.  Click here to access the slides from their presentation. 

Homeowner Tax Credit Bill Clears Senate

The Senate voted on a seven month extension for the tax credit for homebuyers.  It is likely the bill will be signed by President Obama this week.  The homebuyer tax credit would be extended through April 30, 2010 under the bill.  Any buyers who currently qualify to purchase a home will not need to worry about the looming November 30 deadline.  The legislation also makes move-up buyers as well as first-time buyers eligible for a credit.  Under the new bill the credit will remain at $8,000 and the income limits will increase to $225,000 for couples.  A new $6,500 credit would be available to move-up homeowners who have lived in their current residence for five of the prior eight years.