With the expiration of the tax credit quickly approaching, I have been getting quite a few phone calls about qualification. The biggest concern was raised by a friend of mine that happens to be a mortgage lender for Met Life. He was concerned because a mutual client (a buyer) of ours is under contract for a condo that is a short sale. He thought that we had to have the banks final approval by April 30th in order for our client to qualify for the credit. After doing some extensive research, I found out that he was wrong. You have to have a valid and enforceable contract prior to April 30th. Instead of explaining this on my own, I thought I would include a piece on this exact topic. The best source I found was a “question/answer” memo sent out by the Washington Realtors Association. Read below for more details:
Short sale buyer and seller reached Mutual Acceptance and are now waiting for lender/bank approval. The purchase agreement was executed quite some time ago and the number of days allowed for the seller to obtain bank approval, set forth in paragraph 2 of Form 22SS, have passed. Buyer and seller are both still waiting for a positive answer from lender and will proceed to closing as soon as lender consents, even though the agreement is technically terminated. For buyer to qualify for the tax credit, buyer must have a binding agreement. Is this agreement binding if the number of days allowed for lender’s consent, in Form 22SS, have passed?
No. The parties should revive the purchase agreement so that it is a binding agreement on April 30, 2010. The effect of Form 22SS, paragraph 2, is that the purchase agreement terminates on the last day for lender consent (30 days after mutual acceptance is the default provision), if lender consent is not provided. The parties can execute an addendum extending the purchase agreement and extending seller’s Form 22SS contingency, they can execute a new agreement or they can revive the agreement in some other way. But, the parties need to revive the agreement in some way so that they have an active, fully executed agreement on April 30, 2010. If the agreement is terminated on April 30, even by a technical provision, that could cause a problem for a buyer seeking the tax credit.