Home Buying in Denver>Question Details

Robert McGui…, Real Estate Pro in Denver, CO

On a short sale, when is the buyer qualified for the $8000 tax credit? When the seller signs or when the bank sends the signed approval?

Asked by Robert McGuire, Denver, CO Tue Apr 20, 2010

Help the community by answering this question:

Answers

11
BEST ANSWER
There is a short sale addendum in Colorado, which I have read. It does not make the lien holder(s) party to the contract. I have also read Colorado's Contract to Buy and Sell. There are signature lines for buyers and sellers but ... strangely ... no signature lines for lien holders. Even the short sale addendum has signature lines for buyers and sellers but not for lien holders. I'm pretty sure that's because lien holder approval is a contingency, and does not make the lien holders party to the contract. Does the Arizona contract or short sale addendum have signature lines for lien holders?
1 vote Thank Flag Link Tue Apr 20, 2010
Robert-
Since the asset is still owned by the individual and not the bank it is the individual seller's signature which constitutes a binding contract. We simply look to the bank to approve the "short sale," to agree to release the note/lien for an amount less than what is owed. It is true we can not perfect a short sale without the bank's input but the bank also does not have authority to sell the asset. I think it's clean cut- if the seller signs the contract prior to April 30th and they can close in time on a short slae the buyer will qualify for their tax incentive. Now let's get my buyers to the table :-)
Carole
0 votes Thank Flag Link Wed Apr 21, 2010
Brokers,

Thank you all for the answers, responses and insight. I am sure this question will come up a lot in the next week or so. I have 5 short sale transactions that have been in play for months. Seller has signed and we are waiting for bank approval on all of them. There are some that may have bank approval next week and they all will close before June 30th. Although I have had conflicting answers, I tend to agree with Joetta Fort. The seller's signature makes it a 'binding contract'. Wheter short sale or not there are several ways a buyer can still back out on lending, inspection, HOA, survey, etc. etc. None of these issuesdetermine wheter it is a binding contract. I have advised my buyers to also seek advice from their CPA's as I continue to research the matter. I understand that Oliver Frascona agrees that it is the seller's signature that makes it binding and the bank is not a part of the contract. Again, thanks for all of your input.

Robert McGuire ASR
Your Castle Real Estate
3900 E. Mexico Ave. #1350
Denver CO 80210
rmcguire.yourcastle.org
Direct: 303-669-1246
0 votes Thank Flag Link Wed Apr 21, 2010
Robert - they qualify when it closes, as long as it's done by 6/30.
Tim Klein
Broker
0 votes Thank Flag Link Wed Apr 21, 2010
This is a Great Question! I think I would play it safe and go with the Fully signed contract by all parties.
What if you are under contract and do not close for months? I would play it safe and if the Buyer has to have the Tax Credit get them a "normal" sale to save you some headaches.
Brian
0 votes Thank Flag Link Wed Apr 21, 2010
This has always been a tricky question, even with the amended Short Sale Addendum. It is my understanding that though you are "under contract" once the seller signs it is not fully executed until the bank signs off. If I were in your shoes, I'd call the Colorado Real Estate Commission and Oliver Frascona's office. On a short sale, you may find that under contract with the seller is sufficient but there is still a good possibility that it won't close before the June 30th deadline. I have counseled my first time buyers to seek homes not undergoing a short sale first to insure they have the best odds of qualifying for the tax credit. If they cannot find a suitable property, I am very clear with them about the potential time frame when dealing with banks. There's no way I'd want to be responsible for my client losing $8000.
0 votes Thank Flag Link Wed Apr 21, 2010
I've questioned that myself. The IRS website says the buyer has to be in a legal binding contract on or before April 30th. In the past, when I wrote an offer for a buyer, all of my deadlines referred to SSA. With SSA being formal written approval from the seller's lender as well as approval from all parties to the terms. (Buyer's closing costs being slashed, commissions reduced, unsecured promissory notes signed by seller....) Up until that time, I was under the impression anyone could walk away without liability. Is that a legally binding contract? I've searched the IRS website for a definition and have yet to find one. My concern is ultimately, they're the ones who will audit, but the rule is so vague even a CPA could get it wrong.
0 votes Thank Flag Link Wed Apr 21, 2010
Does Colorado have a short sale addendum? If so please read that it can be a helpful tool in situations like this...but again the best advice is going to come from the tax attorney. Again good luck...if there is not a short sale addendum in Colorado like there is in AZ then I can see where the confustion may lay. So again the best bet is to consult with either the IRS site, or the attorney specialized in contract law.
0 votes Thank Flag Link Tue Apr 20, 2010
I have seen this question debated on other forums. But you should definitely get it answered by an accountant or tax attorney. Because it seems obvious to me that the lien holder(s) are not a PARTY to the contract, just the buyer and seller are. Here in Colorado, the homeowner holds title even when there is a mortgage, not the lienholder. So if the parties to the contract have signed the contract, that seems like a fully executed contract to me. Yes, there is a contingency that the lien holder(s) have to accept the terms. But there is also a contingency that the property has to appraise for the sale amount. Does that make the appraiser party to the contract?
0 votes Thank Flag Link Tue Apr 20, 2010
Robert-
check out the government website to answer this question definitively. It is my understatndin that you must be under contract (which would be with the seller, no twith the bank) The difficult part can be closing on time.
Good luck!
Kimberly Ryan
Keller Williams Realty Success
303-523-8333
http://www.SwanReal
0 votes Thank Flag Link Tue Apr 20, 2010
So many quetions on the ending tax credit these days. In order for the buyer to qualify for the tax credit he/she much have an executed contract by April 30th, 2010 and close by the end of June. In general an executed contract on a short sale is not "executed" until the bank has approved the short sale price and terms in writing. This is usually stated in some sort of short sale addendum at least here in Arizona. Check with your local Realtor, Broker, Tax person or Tax attorney for specifics and visit the link below which is information direct from the IRS website. Short sales are a sticky situation to be in when trying to qualify for the tax credit, consult with qualified people in the list above and the IRS page below.
Hope this helps and best regards and good luck
0 votes Thank Flag Link Tue Apr 20, 2010
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer