As buyers who have been sitting on the fence or were not able to get an offer accepted in this hot REO market here in the Lancaster / Palmdale area are watching the clock run down on the Federal First-Time Home Buyer tax credit, the State of California has stepped in to fill the gap.

To have qualified for the Federal First-Time Home Buyer tax credit you would have had to had an accepted contract and opened escrow before April 30th, 2010.  As market trends have been showing us, many buyers jumped in the frey here in Palmdale and Lancaster to meet that deadline.   However, there are some buyers that have been waiting for the predicted flood of new REO / Bank-Owned properties to hit the market and see how they affect prices and there are even more buyers that have been trying to buy a home in Palmdale or Lancaster that have run into the problem we have here of low REO inventory making it hard to get an offer accepted because of the multiple offers running bids up over asking prices.

If you fit into one of these categories, then don’t fear! The Governator signed a bill that will go into affect the day AFTER the Federal Tax Credit goes away.  On May 1st, 2010, the California First-Time Home Buyer and New-Home Buyer tax credit goes into effect.

HOW DOES THE NEW CALIFORNIA TAX CREDIT WORK?

Basically, for either credit, the State of California will credit the first-time buyer or new-home buyer 5% of the sales price up to $10,000 towards their tax liability. This credit is spread out over a three year period.  In other words, if you purchase a home for $180,000 (easy to do here in the Palmdale / Lancaster area!) you would qualify for a tax credit of $9,000.  When you file your taxes for 2010, 2011, and 2012 you would receieve a $3,000 credit towards your tax liability.

Note that if you do not have a tax liability for those years the State of California will NOT give you a refund based on this credit. In other words, if you only owe $1,500 in taxes for 2010 you will only receive a $1,500 dollar credit … the State will not zero out your liability and then give you a $1,500 refund.

Here is a quick run-down of what you need to do to qualify for one of these new California tax credits …

CALIFORNIA FIRST-TIME HOME BUYER TAX CREDIT QUALIFICATION

A qualified principal residence, for purposes of the First-Time Buyer Credit, must:

• Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
• Be eligible for the California property tax homeowner’s exemption.
• Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
• A first-time buyer is any individual (and the individual’s spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the preceding 3 year period ending on the date of the purchase of the qualified principal residence. If the buyer is married on the date of purchase and either the buyer or the buyer’s spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP is not going to be on title.

CALIFORNIA NEW-HOME BUYER TAX CREDIT QUALIFICATION

A qualified principal residence, for purposes of the New Home Credit, must:

• Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
• Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.
• Be eligible for the California property tax homeowner’s exemption.
• Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

For more information and instructions on how to claim your tax credit, please see the official announcement from the California Franchise Tax Board.

Just when you thought it couldn’t get any harder to qualify for a home loan …

FannieMae announced on September 29th, 2009 (yeah, I guess I’m late to the party) that effective December 12th, 2009 they will be reducing the debt to income ratio (DTI) requirement to 45 percent “with flexibilities up to 50 percent for certain loan casefiles with strong compensating factors.”

What this means is that for those folks that were barely qualifying for a mortgage before due to credit card balances, car loans, department store debt, etc. will now be blown out of the home-buying market for sure.

What can you do?  Pay off those loans!  Get rid of your personal debt if you want to qualify for a home loan after December 12th.  Not that that’s a bad idea anyway!

Take note, rent payments toward your current place of residence, utility bills, or other bills incurred towards your current home do not count towards your DTI … It’s the personal debt (credit cards, etc) that we are talking about here.  I believe child and spousal support also counts (let’s NOT gyp your kids to get into a house!).

So don’t worry about that expiring tax credit – offer $8000 less on the property for immediate gratification! – and start worrying about your finances!  Get your ducks in a row, talk to a good mortgage broker/banker, and get to shopping for that home you’ve always wanted … Just make sure your eyes aren’t bigger than your wallet!

This is #1 of a 9-part series highlighting new and/or updated laws as of the closing of the October 2009 legislative session affecting buyers, sellers, and real estate agents in California.  Subscribe to this blog so you won’t miss the rest of the series!

Assembly Bill 957 – Signed into law by Gov. Schwarzenegger on October 11, 2009 and stays in affect until January 1, 2015 is known as “The Buyer’s Choice Act.”

Before we go into the purpose of The Buyer’s Choice Act, let me give you a little of the back-story …

The process of buying a bank-owned (REO) property can be stressful on buyers here in the Palmdale / Lancaster area. During a time in which most foreclosure buyers think that they should have all the control – Hey, it’s a Buyer’s Market, right?! – when they actually get into the process of negotiating an offer on the home they’ve decided on they realize that they don’t have as much power as they thought …

The actual process of the REO home purchase is a topic for another post, but let’s just say that the bank likes to play hardball and twist some thumb screws with their pages of additional addenda to the California Residential Purchase Agreement. Part of the fine print usually defines which companies the bank wishes to use for escrow and title services.

The REO Seller has most likely chosen these services for the following reasons:

• The escrow and title fees have been negotiated upfront. Due to large volume the escrow and title companies have given the REO seller a discount.
• The escrow and title officers have been trained in the systems and procedures of the REO seller. Banks have a large amount of foreclosures that they are working with, so to keep the processes easier and uniform they like to make sure that every file will be handled the same way and all the necessary internal forms are used.
• REO departments like to have a single point of contact. One stop for all the REO files is much easier to keep track of for them.

Now, the problem we are running into here in Palmdale and Lancaster, is that 9 out of 10 bank-owned sales are placed into escrow with a company that are far from local. This sometimes makes it harder for agents and buyers of the REO properties to get paperwork to escrow or for the buyer to go into the escrow or title office to sign loan documents. This has also made a huge impact on the local Antelope Valley escrow and title offices. Many of the smaller escrow companies went out of business in the last couple of years since the real estate bubble burst and even the larger companies have either closed or consolidated their Palmdale and Lancaster branch offices. This has caused several job losses here in the Antelope Valley!

So, I told you that story to tell you this one …

It has long been California law that the choice of escrow and title services are to be negotiated by the buyer and seller as part of the offer/counter offer process. Although some agents may say that the buyer doesn’t have the choice, that has never been the case. The problem has been that some REO sellers that are not familiar with California law are telling buyers, through their pre-printed addenda, that they have no choice … It’s either the bank’s way or the highway!

The purpose of The Buyer’s Choice Act is to prevent the REO buyer from feeling like they are being strong-armed into using services they may not wish to use. The Act requires that the REO seller provide a disclosure to the buyer stating that the buyer has the right to request that other escrow and title services be used. The Act does NOT hand the control to the buyer and force the seller to use the buyer’s preferred escrow and title services – This would be just as bad.

So, does the Buyer’s Choice Act really help the buyer? Possibly … It will require that the REO agent disclose that the buyer can negotiate their own escrow and title services BUT the REO seller still has the right to tell the buyer to go pound sand!

My personal opinion is that the Buyer’s Choice Act was lobbied for by the escrow and title companies that were losing business because they weren’t able to strike a deal for the foreclosure business that some other companies did … I can’t say that I blame them. I miss using my local escrow and title officers too! This may help bring some business back to the local Palmdale and Lancaster businesses (and that would be a good thing!) but the bottom line is, that in this age of the Internet, e-mail, digital signatures, overnight deliveries, etc. it truly doesn’t matter where a company is located – what matters is that they do their job and work with the agents, buyers, and sellers to get the REO sale closed!

What do you folks think? Let’s discuss it in the comments below!