Housing Market Update- New Buyer Tax Credit Rules

Posted on | June 3, 2009 | 5 Comments

PROBLEM- Seller assistance is generally prohibited, whenever the buyer is using a federally-backed loan. Most “new” buyers would like to use the $8,000 tax credit as a down-payment, but lack the $8,000 in cash. The lender cannot give the buyer credit for the tax credit, nor can the seller. So, the $8,000 tax credit Congress created is not helping 1,000’s of buyers qualify, as Congress and President Obama had hoped. Once again, Congress created a solution that solves nothing.

SOLUTION- Enter the U.S. Department of Housing and Urban Development (HUD).

HUD has issued Mortgagee Letter 2009-15, which provides guidance for government agencies and other authorized parties to follow to monetize the first-time homebuyer tax credit through the use of either short- or long-term loans in conjunction with Federal Housing Administration (FHA)-insured mortgage loans. Because the tax credit can’t be assigned by the home buyer to a lender or seller at closing, it is necessary that a third party lend the home buyer these funds if the funds are needed to close a purchase.

Short- or Long-Term Loan Guidelines

Per the Mortgagee Letter, short-term or “bridge loans” can be made by

governmental agencies, nonprofit instrumentalities of government, FHA-approved

non-profits, and FHA-approved lenders when these loans are secured by the tax credit due the home buyer. The amount of a short-term loan may not exceed the anticipated amount of the tax credit plus nominal fees and charges. Longer-term loans that are secured by a second lien on the property may be made by government agencies, nonprofit instrumentalities of government, and FHA-approved nonprofits, however, the second lien may not exceed that which is needed for the down payment, closing costs, and prepaid expenses. The advance must provide for principal and interest payments to begin automatically if the borrower does not repay the amount borrowed by a designated deadline. If payments on the tax credit advance are required, they must be included in qualifying the borrower and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay. Payments must be deferred at least 36 months from the settlement date in order to be excluded from qualifying ratios. While a borrower would be allowed to repay the second loan voluntarily, the terms of the loan must not require a balloon payment before ten years have elapsed.

More Information Available

Many state housing finance agencies are offering tax credit-related loan programs. More information about these programs can be found on the National Council of State Housing Agencies (NCSHA’s) web site at:

www.ncsha.org/section.cfm/3/34/2920.

Information regarding the process by which nonprofit organizations can seek FHA

approval can be found at: www.hud.gov/offices/hsg/sfh/np/np_prog.cfm.

Each of the four HUD Homeownership Centers maintains a list of approved nonprofits in

their service areas. These lists can be accessed via:

www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm.

Removing Liens From Real Estate

Posted on | May 19, 2009 | No Comments

A Question From One of Matt’s Readers-

“I am a mortgage banker. I am doing a streamline refinance for a customer of mine. We are refinancing with the same investor he refinanced his loan with 2 years ago. Since then he has had a lien put on his property. he is making payments on this lien. What will the investor need to satisfy the transfer of title?”

Matt’s Answer-

I  don’t have all the facts I might need, so I am going to make some assumptions.  If my assumptions are wrong, let me know.  I’ll change my answer, if the new facts make a difference.

I assume that the lien holder is not the investor.  I am not sure what you mean by “What will the investor need to satisfy the transfer of title?”  I assume that your questions concern how to complete the refinancing of this property, because the first financing obligation is now due and must be repaid.

If the investor holds a first mortgage and that mortgage is superior to the lien, I would simply extend the term (time period) and modify the provisions of the existing note or whatever other financing mechanism was used for the first financing.  Read the mortgage, if it exists, to make sure that it contemplates loan extensions, renewals, etc.  Make sure the mortgage is recorded.  And make sure the mortgage has priority over the lien.  These are things that will protect the investor, which should make the refinancing easier to complete.

If there is no mortgage and/or the lien has priority, I would need much more information to determine whether the lien poses a significant threat to the investor.  If the investor is not comfortable with the risks the investor is taking in refinancing your client’s transaction/property, then you’ve not created a win-win scenario.  By helping the investor, you’re helping your client.  All good deals are win-win deals.

I only believe in win-win deals.  If one party to an agreement or transactions is treated unfairly, then that is a bad deal.  Lawyers are the only ones who get rich trying to resolve, correct, undo or fix bad deals.  So, strive to create only win-win transactions and business relationships.

Finally, consult with a local attorney.  I’ve discussed general concepts here that might be impacted by state or local law.  I think you’re in Georgia.  If you need help finding a good lawyer in Georgia, please let me know.  I’ll try to help you with that.

I hope this helps.  Thanks for the question.