June 2009

Using your tax credit to help with closing costs?

Rising from the ashes is a revised guideline from HUD stating that home buyers using FHA loans are allowed to tap into the $8,000 first-time home buyer credit to pay closing costs at the time they settle on their home. They still need to have the 3.5% down payment.

HUD sent out a memo in early May announcing this program as many of you readers probably recall, but promptly pulled the memo when reasonable people like me pointed out the half-baked program. By the end of May they were ready to give it another shot.

There has been a ton of confusion over the specifics and, I admit, I was part of that group feeling that there would be loan sharks lining up to charge hefty fees to unsuspecting first-timers.

But the funny part to me is that the fee cap appears to be 2.5%, and the combined loan and fees cannot exceed the tax credit. The tax credit is 10% of the sales price or a maximum of $8,000, so the fee is less than $200? The use of the word “fee” seems vague because isn’t interest on these loans considered a fee? And HUD/FHA is asking the investor (yes, investor) to perform some due diligence to make sure the borrower is not a risk.

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

• Require the homebuyer to draft and provide the IRS form 5405 First-Time Homebuyer Credit.

• Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.

• Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.

• Validate that all of the eligibility requirements for the tax credit are fulfilled

• Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

So there will be some extra hoops to jump through, but if borrowers want the cash now then they will need to work just that much harder. The detailed specifics of the “fees” will be essential and if that includes interest? So my best recommendation for those folks planning to exercise this option, plan for settlement at least 60 days from ratification.

Disclosure of Business Relationships

Doug Francis

Licensed in Commonwealth of Virginia: Real Estate Board – Salesperson License Number 0225 021708 Expires: 12-31-2009

There are no complaints filed with the Virginia Department of Occupational Regulation (DPOR)

My Real Estate Broker:

Presidential Properties Inc.

RE/MAX Presidential

3028 Javier Road Suite 100

Fairfax VA  22031

703-573-2500

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My innocent trip to Arlington County Court

When I meet with clients, I like to discuss that I consider the equal opportunity laws to be the “highest law of the land”. Some of you may remember me actually saying those words because I know that they carry some serious consequences if they are violated.

We just had the fortieth anniversary of the Federal Fair Housing Act of 1968 which prohibits discrimination based on race, color, sex, religion, national origin, familial status or handicap (mental or physical). It is also illegal to consider these matters as factors when determining the value of the property for a listing. I’m sure this logo must look familiar to everyone over 12.

Did you also know that intent to discriminate generally does not have to be shown?

Yes, you are guilty! (I will tell you the fine below)

So, I was giving a price-range opinion in the Arlington County Courthouse today under oath, and the attorney asked me “if the demographics of the neighborhood effect the rental price of a home?” Hey, I’m just there to give a price-range opinion on a home that I have only seen from my car and the Arlington County tax records, not talk about shifty ways people use demographics to determine prices or discriminate.

My response was that “I cannot comment on the demographics of any neighborhood.” Not because I was thinking about the Federal Fair Housing Act of 1968, but because I really didn’t know who lives in that neighborhood.

It did not hit me until I left the Courthouse that this guy was trying to get me on the record violating the Federal Fair Housing Act of 1968, and I am really pissed about it. Over the past 18 years, my clientele has resembled the United Nations, with many first generation immigrants, inter-racial couples, over 55, singles, and a class protected only in Arlington County and Alexandria City, sexual orientation. These clients trusted me to help them, and a few told me past situations where they were discriminated against. Well, not on my watch.

If I wasn’t an experienced agent who has had the FFHC of 1968 hammered into me then I probably would have walked right into this bear trap. (Maybe that’s why I had a friendly sheriff escort me to the courtroom?)

Arlington County protects everything mentioned above in the FFHA of 1968, but there are additional groups covered by Arlington County Ordinances including:

• Elderliness

• Marital Status

• Age

• Sexual Orientation

I have had a few occasions over the past 18 years where people who I did not really know asked me about the demographics of an area. Have you ever heard that HUD has testers who pose as buyers who ask leading questions just like this? My response is to tell them to look it up on the Internet where you can get all the useless information you will ever want to know.

Let me be clear: Get the heck out of my car if you expect me to discuss demographics.

Oh yeah, the automatic fine is $50,000 and you are guilty until you prove yourself innocent.

Yes, I’m still steamed!

I am not a lead…

Is it time for a paradigm shift in the real estate business?

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