Tax Credit

Home Buyer Tax Credit Extended To September 30 And Flood Insurance Program Restored

by Rich Vetstein on July 1, 2010 · 1 comment

in Insurance,Massachusetts Real Estate Law,Tax Credit

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Congress gave home buyers some good news before the July 4th holiday weekend.

Home Buyer $8,000 Tax Credit Deadline Extended to September 30

Congress approved late Wednesday an extension to the June 30 closing deadline for the home buyer tax credit, hours before it was set to expire. The move will give would-be buyers who signed a purchase agreement by April 30 more time to close on those deals and receive the credit that is worth up to $8,000. The new deadline is Sept. 30.

The Senate approved the measure unanimously on Wednesday, one day after the provision sailed through the House of Representatives with little opposition. The President is expected to sign the measure soon.

More: Wall Street Journal

Flood Insurance Program Restored

Even better than the tax credit was Congress’ move to restore funding for the federal flood insurance program which had run out of money on May 31. Perhaps Congress read my prior blog post on this situation!

The Senate has passed the funding extension until September 30, 2010. This will allow transactions to move forward. The bill is retroactive and covers the lapse period from June 1, 2010 to the date of enactment of the extension. It’s a short term fix, but it will get closings completed for homes in flood zones. Congress will have to revisit this in September.

More: P&C National Underwriter

Have a happy and safe Independence Day Weekend everyone!





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Early Impact Of First Time Home Buyer Tax Credit Appears Strong

by Rich Vetstein on May 2, 2010 · 1 comment

in Massachusetts Property Values,Realtors,Tax Credit

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The deadline for getting under contract for the First Time Home Buyer Tax Credit was last Friday, and some preliminary statistics are already coming out demonstrating how popular the program was.

  • The Boston Herald reports that almost 30,000 Massachusetts buyers have taken advantage of the credit already, and that doesn’t include the most recent weeks of frenzied activity in April.
  • The National Association of Realtors estimates that 4.4 million Americans will ultimately receive tax credits. That includes 900,000 buyers that NAR projects wouldn’t have purchased homes otherwise.
  • Massachusetts sales of single-family homes for March leading up to the credit were up about 28% over last March — the largest March year-over-year increase on record. Once the statistics for April come out, we should see some very strong numbers. Realtors were reporting very heavy activity last week, leading up to the tax credit deadline. This week was our busiest of 2010, by far, for new purchases.

The Other Foot…

But…all good things must come to the end, and the biggest question looms. How will the real estate market fair in a post-tax credit world? One school of thought is that the tax credit created an artificial demand which will ultimately hurt the natural equilibrium of the market. Others believe that the stimulus was just what the doctor ordered, and expect the housing market to stay strong and on track. It’s probably going to be a bit of both, and the proof will be after the data comes in through June 30 when all tax credit sale must close.

Congratulations to all those new home buyers who were able to find a home! Lastly, I believe that folks who buy in 2010 can claim the credit on their 2009 returns by amending their 2009 return. Click here for the IRS website. Talk to your CPA for more guidance.





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$8,000 Home Buyer Tax Deadline Expires Today: You Need A “Binding Contract”

by Rich Vetstein on April 30, 2010 · 0 comments

in Offer To Purchase,Purchase and Sale Agreements,Tax Credit

Today is the deadline for buyers to have a “binding contract” for the $8,000 Home Buyer Tax Credit.

  • Under the IRS guidelines, Buyers must have a “binding contract” on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed contract and the HUD-1 Settlement Statement for the closing.
  • Is a signed offer to purchase or signed purchase and sale agreement sufficient for the April 30 deadline? There’s been quite a bit of debate on this issue in Massachusetts and the rest of the country with a 2-step contract process. Unfortunately, there’s been no formal IRS guidance. There is case law that the standard form Greater Boston Real Estate Board Offer to Purchase is a binding agreement. But all offers are different, and some may have special contingencies (see, short sales), which may take it out of this case law rule. Buyers can eliminate the risk of having their credit disallowed by getting a purchase and sale agreement signed by today. You can always defer the home inspection until next week and make it a contingency in the purchase and sale agreement.
  • If buyers cannot sign a purchase and sale agreement by today and intend to submit a signed offer for the tax credit know that the IRS rules require the names of all parties on the “binding contract.” Make sure the names of the sellers and buyers are legible on the offer. Realtors, who customarily fill out the offer to purchase, typically address offers to the “owner of record.” Realtors: make sure you spell out the names of both buyers and sellers, get all the signatures, spell out the closing date for on or before June 30, 2010, and write legibly so the IRS can read it.
  • For all tax credit qualification issues, consult a tax attorney or CPA, and contact us to get your purchase and sale agreement done by Friday.

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Home Buyer Tax Credit: What You Need For April 30 Deadline

by Rich Vetstein on April 27, 2010 · 1 comment

in Massachusetts Real Estate Law,Offer To Purchase,Purchase and Sale Agreements,Tax Credit

As we head to the April 30th deadline for the $8,000 Home Buyer Tax Credit, here’s a quick summary of the rules.

  • Buyers must be under contract on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed purchase contract and HUD-1 Settlement Statement.
  • There’s been quite a bit of debate as to whether a signed offer to purchase or signed purchase and sale agreements is sufficient for the April 30 deadline. I’ve been erring on the side of caution by recommending getting the P&S signed by Friday, but some realtors and attorneys disagree and say that a signed offer is enough. I’d like to see some formal IRS guidance here. The IRS rules require the names of all parties on the “binding contract,” and the offer typically is addressed to “owner of record.” If Realtors are going to use the offer, ensure that all parties names are legibly shown on the offer. Bottom line: consult a tax attorney or CPA on tax credit issues, and contact us to get your purchase and sale agreement done by Friday.
  • The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
  • The new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time home buyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
  • The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

  • Dependents are not eligible to claim the credit.
  • No credit is available if the purchase price of a home is more than $800,000.
  • A purchaser must be at least 18 years of age on the date of purchase.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, is now available here. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

Here’s an IRS produced video outlining the program.





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Do Buyers Need A Signed Offer Or Purchase And Sale Agreement For The April 30th Tax Credit Deadline?

by Rich Vetstein on April 26, 2010 · 2 comments

in Closings,Massachusetts Real Estate Law,Offer To Purchase,Purchase and Sale Agreements,Tax Credit

Post image for Do Buyers Need A Signed Offer Or Purchase And Sale Agreement For The April 30th Tax Credit Deadline?

As we head towards a major deadline for the popular $8,000 home buyer tax credit, we’ve been asked a number of times by real estate agents and mortgage professionals whether buyers need a signed offer to purchase or signed purchase and sale agreement by the upcoming April 30th tax credit deadline. We’re advising that buyers need a signed purchase and sale agreement by the deadline, as explained below.

In order to qualify for the $8,000 federal home buyer tax credit, the IRS states that buyers need to sign a “binding contract” for the sale by April 30, 2010.

In Massachusetts, there is a two-part system for real estate contracts. The parties first sign an Offer To Purchase, then about 2 weeks later, they sign a more comprehensive Purchase and Sale Agreement. Under the Massachusetts case of McCarthy v. Tobin, a signed standard form Greater Boston Real Estate Board Offer To Purchase may be considered a valid and binding contract even though a purchase and sale agreement must be signed at a later date. However each transaction/offer is unique and may have contingencies or future considerations which take it out of this case law rule. And remember, most of these types of cases are litigated in the courts, so it’s really fact-specific.

Under IRS rules, to claim the $8,000 credit, the buyer will have to attach to their tax return a copy of the “binding contract” showing an execution date on or before April 30, 2010. We just don’t know whether the IRS will interpret a signed Offer To Purchase as a “binding contract.” There is no question a signed Purchase and Sale Agreement is sufficient. However, there’s a risk that the IRS could reject reliance on a signed Offer to Purchase or it could delay qualification for the credit. This is a new rule so we just don’t know how the IRS will interpret it, and that raises a risk.

Accordingly, the prudent approach is to have all buyers claiming the credit sign a purchase and sale agreement by April 30th.  That is what we are advising our buyers, their Realtors and loan officers. We are also now inserting a special tax credit provision in purchase and sale agreements protecting the buyer’s eligibility for the credit.

Of course, our office is well-equipped to get a Purchase and Sale Agreement completed and signed by the Friday deadline. We’ll be working around the clock this week for our buyers and sellers! Contact us at 508-620-5352 or by email.





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The Massachusetts Offer To Purchase Real Estate: A Binding Contract

by Rich Vetstein on September 8, 2009 · 11 comments

in Condominium Law,Massachusetts Real Estate Law,Offer To Purchase,Purchase and Sale Agreements,Tax Credit

Post image for The Massachusetts Offer To Purchase Real Estate: A Binding Contract

The Standard Massachusetts Offer To Purchase

The first step in purchasing or selling Massachusetts residential real estate is the presentation and acceptance of an Offer To Purchase. Most often, the buyers’ real estate broker prepares the offer to purchase on a pre-printed Greater Boston Real Estate Board standard form and presents it to the seller for review, modification, and acceptance. Attorneys are often not involved in the offer stage. However, in light of the legal significance of a signed offer and recent litigation over offers, buyers (and their brokers) and sellers may be wise to consult an attorney to review the offer.

An Accepted & Signed Offer Is A Binding Contract

Many sellers (and their brokers) are under the misconception that the offer to purchase is merely a formality, and that a binding contract is formed only when the parties sign the more extensive purchase and sale agreement. This is not true. Under established Massachusetts case law, a signed standard form offer to purchase is a binding and enforceable contract to sell real estate even if the offer is subject to the signing of a more comprehensive purchase and sale agreement. So if a seller signs and accepts an offer and later gets a better deal, I wouldn’t advise the seller to attempt to walk away from the original deal. Armed with a signed offer, buyers can sue for specific performance, and record a “lis pendens,” or notice of claim, in the registry of deeds against the property which will effectively prevent its sale until the litigation is resolved. I’ve handled many of these types of cases, and buyers definitely have the upper hand given the current state of the law.

In some cases, the seller may not desire to be contractually bound by the acceptance of an offer to purchase while their property is taken off the market. In that case, safe harbor language can be drafted to specify the limited nature of the obligations created by the accepted offer. This is rather unusual, however, in residential transactions.

Home Inspection & Mortgage Contingencies

With the offer to purchase, I always advise buyers and their brokers to use a standard form addendum to address such contingencies as mortgage financing, home inspection, radon, lead paint, and pests. The home inspection and related tests are typically completed before the purchase and sale agreement is signed and any inspection issues are dealt with in the purchase and sale agreement. If they are not, there is an inspection contingency added to the P&S. See my post on purchase and sales agreements for that discussion.

The mortgage contingency is likewise critical. With mortgage loans harder to underwrite and approve, we are seeing loan commitment deadlines extended out for at least 30-45 days from the signing of the purchase and sale agreement. Always consult your mortgage lender before making an offer to see how much time they will need to process and approval your loan. The loan commitment deadline is one, if not the most, important deadlines in the contract documents.

In order to help finance the acquisition of said premises, the BUYER shall apply for a conven­tional bank or other institutional mortgage loan of $[proposed loan amount] at prevailing rates, terms and conditions.  If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before [30-45 days from signing of purchase-sale agreement], the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto.  In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before [2-5 business days from signing of purchase and sale agreement].

Any time the parties agree to an extension of any deadline in the offer (and the purchase and sale agreement for that matter) make sure it’s in writing.

_______________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing and conveyancing attorney and former outside counsel to a national title insurance company. Please contact him if you need legal assistance with your Massachusetts real estate transaction.





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Time’s A Runnin’ Out On The First Time Homebuyer $8,000 Credit

by Rich Vetstein 09.08.2009 Massachusetts Property Values

Now that time is running out on the First Time Home Buyer Credit–what I call the Realtor Cash For Clunkers program — I came across this comically shameless video produced by one of America’s largest real estate brokerage companies. [http://www.youtube.com/watch?v=2leBqxcwhvI] But seriously folks, the credit seems like a good idea, but filled with exceptions.  From [...]

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There’s Nothing “Standard” About The Massachusetts Standard Form Real Estate Purchase And Sale Agreement

by Rich Vetstein 08.21.2009 Condominium Law
Standard Form Massachusetts Real Estate Purchase Sale Agreement

Anything But “Standard” Home buyers sign a never ending pile of legal documents to purchase a home. But arguably the most important document in the entire transaction is the Massachusetts purchase and sale agreement. The purchase and sale agreement is signed after the Offer to Purchase is executed, and spells out the parties’ responsibilities during [...]

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