Tax Credit Extended Through April 2010

As speculated, discussed, and essentially predetermined, Congress has called for an extension of the "First Time Home Buyer" Tax Credit, that was set to originally expire at the end of this coming November. Under the extension, said Buyers will have until the end of April to sign sales agreements and would have until the end of June to close on their new homes. While this news is refreshing, it is still early. Many speculate that the Tax Credit should be extended even further, and should include a significant increase the credit amount. Proponents argue that this would not only directly stimulate sales, but also directly impact every day people...unlike the other stimulus funds that were never seen and/or felt by the average U.S. Citizen. Again, while this is relatively fresh news, more details are not yet available, but please stay tuned for regular updates on the Boston Residential Real Estate Law Blog.
Also, for more information please feel free to browse www.lisslawboston.com
Avi Liss
Liss Law, LLC
info@lisslawboston.com

Government Set to Offer More Aid for Local Housing Market

Yesterday, in an attempt to provide much needed help to State and Local housing finance agencies, the White House revealed a new plan.

The Plan, which many feel is a follow-up to the White House's First Time Home-Buyer Tax Credit, essentially will help the agencies finance mortgages for first-time homebuyers and develop rental housing. This is logically seen as a part-B or follow-up plan, for the primary reason that, although the tax credit was a good incentive for first time home buyers to get out and shop, it still did not resolve the availability of funds for said buyers. While several first time home buyers sought to take advantage of the tax credit, local institutions were in such a credit crunch that it was extremely difficult to provide necessary funding to facilitate the transactions.

With the help of Fannie and Freddie, the aforementioned credit crunch will have some very powerful and much needed assistance. The plan provides that both Fannie and Freddie can and will bundle mortgages made by the various housing agencies and sell them as bonds to the Treasury Department. These bonds in turn raise more money and in the end provide for more capital or credit to be extended. Additionally, and what I find to be most important, Fannie and Freddie will now be willing and able to provide financing for the agencies with the support of the US Treasury. Prior to this plan, the Treasury was unwilling to back these agencies for what many reasoned was a fear of continued losses due to growing numbers of defaults.

While this will not play an enormous role in the over-all market, the agencies which directly assist in the first time home purchase of anywhere from 100,000 to 200,000 a year, will at a minimum create some much needed stimulus to the industry.

We should hopefully see the housing agencies throughout Massachusetts increase their lending in the very near future. The biggest factor is whether these agencies are ready to actually start lending or will they sit on these reserves and continue to play a conservative roll. Only time will tell.

Avi Liss, Esq.
Liss Law, LLC
www.lisslawboston.com
617 778 0363
aviliss@lisslawboston.com

The agencies play a relatively small role in the mortgage market, aiding about 100,000 to 200,000 first-time borrowers a year

New FHA Rules: What are the rules and how might they impact condo sales?

Starting October 1st, 2009...yes, just a few weeks from today...the FHA has stated that condos must meet several new standards in order to be eligible for FHA purchases.

The Following Are the Standards & How they may impact condo sales:

• All projects not deemed to be used primarily as residential real estate are out.

- Not necessarily an enormous rule change as FHA's have traditionally been utilized for residential mortgages, however a small number of new and existing developments will undoubtedly be affected. As far as the New England market is concerned, I do not foresee this being a tremendous player.

• FHA insurance will be unavailable when properties are within 1,000 feet of a highway, freeway, or heavily traveled road; 3,000 feet of a railroad; one mile of an airport; or five miles of a military airfield. T

- It seems that FHA is now concerned with the amount of noise pollution within a certain distance to the property. Accordingly, the above mentioned distance requirements are sure to cause an enormous headache (pun absolutely intended). New England, particularly in its more urban settings often times are well within the distances outlines in the new FHA rules. This rule is sure to be a big problem and in my opinion for no real good reason. I can understand FHA being concerned about the actual craftsmanship and structural integrity in the property, but to preclude property based on its location (which mind you CANNOT be moved) is a tad vague and over-reaching.

• There will be no more FHA loans if the property has an unobstructed view, or is located within 2,000 feet, of any facility handling or storing explosive or fire-prone materials.

- Unlike the noise hazard standard set out previously, I can see why this is a concern, and furthermore, do not predict this being a major issue in the New England Market.

• If the property is located within 3,000 feet of a dump, landfill, or super-fund site (a toxic site being cleaned up by the government), FHA will not apply.

- Again, I have no major problems with what FHA is trying to do here, however I do find the 3,000 feet to be too large a distance. If a better explanation could be provided I may see the point, but why is 3,000 feet the magic number? Is that when you stop smelling the dump? Or stop receiving exposure from the toxic site? My main concern here is yet again that if a building is already standing and is now within this 3000 foot area, what happens to it? There is no grandfather clause protecting any of these buildings and as a result even more developments stand to get hit hard. While properties that fall outside of the new FHA standards will reap an enormous benefit, those that arbitrarily lie within the standards get a knock on the chin...something does not sound fair about that.

• Not more than 25 percent of the property’s total floor area can be used for commercial purposes.

- Understood and agree with this and again, do not think that this will play a large role in impacting the over-all numbers. Determining which portion of your floor is "commercial" and non-commercial is as easy as the developer or buyer stating..."yes, it is less than 25%"

• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.

- Here is one of the big ones. This standard alone will no doubt rule out an enormous amount of small time developers that built 3 and 4 family properties. Once again, developments that have already begun or have already been completed, and are sitting waiting to be sold, may be at jeopardy for finding FHA buyers...and in this economy, FHA loans are arguably the last line of offense preventing the real estate market from completely crashing. In a market where 20% down is extremely hard to do, the FHA loan opened up a larger window of opportunity not only for purchasers, but also for developers seeking to unload their units.

• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.

- This is a great policy and will also enhance in the long run the management and care for all buildings. It will also establish a good reason for condo or home associations to have stricter policies on collecting delinquent association fees.

• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid pre-sales include an executed sales agreement and evidence that a lender is willing to make the loan.

- Again, another kick in the face to both developers and purchasers alike. This seems drastic and will undoubtedly prohibit developers from simply selling available units that could be sold on the general market. However, now developers will have to find the non FHA buyer (which as stated may be more difficult in today's market) and once over 50% of the units are owned by non-FHA borrowers and so long as one owner does not own more than 10% of the units....yes then.....finally.....we can go find an FHA approved borrower. This will be a big one.

• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of pre-sold units (the minimum pre-sales requirement of 50 percent still applies).

- Thought about investing in some real estate? May be too late....now developers don't want you to buy.....because you may screw up their numbers for finding good buyers. This, like many of the rules appears to be counter intuitive and counter productive at best.

• Projects in designated wetland and flood zones will not qualify for FHA insurance.

- makes sense....even though we have things called flood insurance to protect homes from any issues that may arise, the FHA still has the right to be exclusive.

Conclusion:

In my opinion the FHA certainly had to make some changes, but i question the changes they made and fear the results will be far worse on condominiums than they will on single-family homes. Because of the hoops developers will have to jump through to be deemed FHA eligible, costs of condominiums is sure to drop. Developers will simply want to do what they need to do to sell the property and move on to the next project. While its better for consumers on one end of the spectrum, it is also much worse for the others who rely on FHA loans to buy properties and will now be precluded.

In the end, like all things, it will correct itself and the system will readjust. Developers will begin creating projects that comply with the FHA rules, buyers will still want to buy, and lawyers like you and I will still love to hear their own voice (or in my case read it).

Any thoughts or comments are much appreciated and welcome!