We all know that the expiration of the home buyer tax credits expire at the end of the month. To qualify for this tax credit, homes need to be under contract by the end of the month. But what about for short sale homes? About 18% of the homes for sale in Northern Utah right now are Short Sales.
If short sales are under contract, are they still considered “under contract” in terms of being eligible for the home buyer tax credits? A short sale contract is a valid contract, but it isn’t enforceable. In the Utah Short Sale Addendum to the Real Estate Purchase contract there is a clause that essentially says that the contract can be canceled at any time.
During this significant time delay, circumstances may change for both Seller and Buyer. The changes in circumstances may include, but are not limited to: (a) adjustments in available mortgage financing rates and terms; (b) modifications in the financial circumstances of Seller or Buyer; (c) the timing of the transaction may no longer meet Buyer or Seller’s needs; (d) Buyer may find another property that better suits Buyer’s needs; and (e) Seller may receive additional offers for the purchase of the Property that better address Seller’s legal and financial needs. Based on the above, if at any time prior to Third Party Approval, or the Third Party Approval Deadline, whichever occurs first, the Buyer or Seller determines that their circumstances have changed and it is no longer in their best interest to pursue the sale/purchase of the Property, either Buyer or Seller may cancel the REPC by providing written notice to the other party. In such instance, the Earnest Money Deposit, if any, shall be returned to the Buyer without the requirement of further written authorization from Seller. Buyer and Seller acknowledge and agree that this mutual right of cancellation is fair and reasonable to both parties.
And what will the IRS consider “under contract?” Is it when the homeowner signs the short sale contract, or when the third parties actually approves it? I don’t know the answer.
The bigger issue with trying to purchase a short sale, and take advantage of the home buyer tax credit is the probability that it will be able to close by the end of June. I’m sure banks in charge of approving short sales will be busier than ever, and the likelihood of that happen isn’t great.
My recommendation would be to only make an offer on a short sale property if it is absolutely a home you love, and would be willing to buy with our without the $8,000 from Uncle Sam. The probability of it legitimately getting approved, and going under contract in time to qualify for the tax credits isn’t great.