Talon Northwest Neighborhoods

Documentation required after filing First-Time Homebuyer Credit

While The Talon Group doesn't pretend to be an authority on giving tax advice, we can help first time home buyers in Washington get much of the back-up documentation associated with filing the IRS form 5405. Recent comments on various blogs around the country point to added scrutiny from the IRS in approving the lucrative tax credit. It also appears that refunds are being held up for several weeks waiting for additional documentation to validate eligibility.

The Treasury Inspector General for tax administration issued a report in late September reviewing widespread fraud and inaccuracies associated with IRS tax returns already filed:

The Internal Revenue Service faces significant challenges in verifying eligibility for the First-Time Homebuyer Credit 

The IRS responded that any requirement to attach documentation to the filed returns would present a burden to both the IRS and taxpayers and would preclude many taxpayers from electronic filing.

According to concerned taxpayers, this has all resulted in tax credit refunds taking much longer than expected and additional requests from the IRS for back-up documentation.

The most commonly mentioned documentation is the HUD-1 Settlement Statement. For the typical residential transaction, buyers will see two different versions of the HUD-1. The one signed at escrow is referred to as the "estimated" while the HUD received in the mail after closing is considered "final". The difference between the two versions are substantial:

• The Estimated HUD-1 can be defined as a very close approximation of settlement figures based on a proposed closing date. The figures are subject to further change and in no way indicate that the transaction has been consummated.

• The Final HUD-1 is an accurate representation of all settlement figures based on the closed transaction. The escrow closer will often sign/stamp this HUD-1 as "Certified" and mail out to the lender, real estate agents, buyer and seller. Again, a final HUD-1 is only prepared by escrow after a transaction has been closed!

Talon provides both buyer and seller copies of the signed estimated HUD along with all other documents signed at escrow. If you were not provided with these copies or have misplaced them, your particular escrow company will be happy to send you what you need.

Two other important documents often mentioned when researching this post were the Deed and Real Estate Transfer Tax or commonly known as an Excise Tax Affidavit in Washington State.

Talon's Real Estate Information Manager, Chris Lodge, has prepared the following video presentations to illustrate just how easy it is to obtain these documents on-line from King County, WA. (many counties provide this same on-line service). If the IRS asks for a certified auditor's copy of the deed, this can be purchased for a nominal fee from the county auditor's office where the home is located.

Find your Excise Tax Affidavit

 

 

 

Find your last recorded deed

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Interpreting the Signs - September 2009 King County Resale Statistics Available

Sometimes it's hard to keep up with all the different news stories about the real estate market.  Are we up?  Down? Have we hit bottom?  Are they talking about our local market or the national one?  So many different questions but what most people want to know is what's happening in my neighborhood.   

That's why every month we gather local resale statistics directly from the King County recorders office.  We can account for every transfer of ownership recorded within that time frame.  We compare those statistics (average sales price and number of sales) with those of the same month the prior year and create separate reports for; All King County, the Eastside, Seattle, North, South and Southeast King county.

We recently finished compiling September 2009 Resale Statistics for King County and the number of sales recorded that month was up 20% in comparison with September 2008.  The Average Sales price was down 2% year over year.  These reports are available for $1 each and can be obtained via email request or calling 1-800-497-0123 (ask for Customer Service).

Unfortunately it is against the OIC regulations* for us to either publish these reports online for the general public or to give them away free of charge.  

Our report uses the following parameters when gathering local (residential) resale statistics;

• Current use code of single family homes
• Sale dates are recorded and reported by the county with the reports time-frame.
• The sales price is greater than 35% of the assessed value (thus eliminating quit claim deeds with no monetary consideration and other transfers of title that appear not to be a sale).

* Title Insurance Companies in Washington State are regulated by the Office of the Insurance Commissioner ("OIC") and have strict regulations regarding title & escrow rates and what can be provided to any person who may direct a title order. 

What the Collected Funds law means to escrow

Escrow companies in Washington State are bound to comply with the collected funds law created in
 1990 (RCW 18.44.070). This law requires an escrow agent to wait one business day to disburse funds after the particular business day the funds were deposited. For example, a cashiers check drawn on a WA bank must be deposited at least 24 hours prior to disbursing the funds. Checks drawn on out of state banks may take several days to become "collected funds".

The only exceptions include an electronic interbank transfer (commonly known as a wire), cash deposit (most escrow companies deny accepting cash due to accounting issues) or a form of deposit that can be easily converted to cash the same day the deposit is made.  

If it's absolutely critical to close a transaction on time, please make sure that all funds being deposited in escrow be via a wire transfer. Escrow settlement companies are more than happy to provide buyers and lenders with clear wire instructions.  

Does it matter what time of day I wire funds to escrow? YES! Even though wired funds are considered collected funds, the cut off time for escrow companies to receive the wire varies due to the east coast operating hours of the Federal Reserve (processes interbank wires). The escrow agent must see proof of the wire hitting their bank and properly receipt the funds into the file before disbursement can take place. 

Bottom line: Lenders and buyers should have their banks initiate the wire as early as possible if they're looking to close on the same day. Especially on the west coast!  

To List or not to List

Sounds like a question poised for a real estate agent but in this case, we're exploring the new Good Faith Estimate guidelines that become mandatory in January 2010. In particular, pages 10 & 11 of the new section regarding the written list of third party providers.

The New RESPA Rule FAQs updated on October 7th clearly states that a lender only has to provide a list of 3rd party settlement providers to borrowers when the lender permits the borrower to shop around for services. 

Q: When do loan originators have to provide the borrower with a written list of identified providers?

A: When a loan officer permits a borrower to shop for third-party settlement services, the loan originator must provide the borrower with a written list of settlement service providers at the time of the GFE, on a separate sheet of paper. 

The word "permits" is used in six out of the seven Question and Answers covering this section.

Given this new GFE guideline, it may benefit lenders not to permit their borrower to shop for 3rd party providers. Providing a list would hold the loan originator liable for quoting the exact fees for every company listed. Much easier said than done! Third party providers often change fee structures and/or will charge extra fees for services not anticipated at the time the GFE is created i.e. preparing Quit Claim deeds, outside courtesy signings, and special delivery charges. 

What if a borrower threatens to walk if they aren't allowed to shop? The best answer may be to provide a list with only one or two preferred providers that the loan originator can quote with confidence. If the borrower decides on a different service provider, "the amount paid for that service is not subject to a tolerance".  

Purchase transactions

It gets more interesting when quoting a GFE on purchase transactions. In this case, the title and escrow company will be chosen on the signed Purchase & Sale contract. If you're going to provide the borrowers with the the new GFE prior to knowing who the service providers are, you may be taking an unwarranted risk. Escrow fees can differ wildly between companies, sub-escrow fees may apply, and the parties may choose between a Standard or special Homeowner's title coverage. The difference in price is commonly 10% unless discounts apply. There goes the tolerance! The best answer could be to provide a list with only one choice (quote worse case pricing with Homeowner's coverage, sub-escrow, no discounts, etc.) or, if HUD allows, using an all-together different form to estimate costs.

Talk to your company about which strategy best suits your needs. The new year will be here before you know it!   

Estimated HUDs have become the new "RUSH" for Escrow Professionals

 
There is little doubt that new Federal regulations and short-sales are making it tougher for the "quick close" but there is still no rest for the weary escrow professional. The urgency of providing estimated HUDs has emerged as the new "drop everything" in the world of escrow.

Last minute docs delivered to escrow used to be the #1 thorn that caused escrow to put everybody's transaction to the side. Now, it's getting rare for lenders to even send us docs until an estimated HUD is provided first (ASAP of course!). No one can blame lenders for making darn certain that all new guidelines are being met. Compliance to these new rules are critical to closing on time and creating a positive experience for the consumer. 

In addition to the anxiety lenders are dealing with, messy transaction are dominating many escrow desks. If you've ever been involved in a short sale you already know about the extra burdens being put on escrow. It's not uncommon for your escrow officer to provide a half dozen or more HUDs before the lender(s) approve the sale. Double or triple that figure when that buyer is bounced and a new one takes their place!

How escrow companies deal with these new demands will be interesting. Diluting the quality of service our customers are accustomed to should not be an option.

Photo by Rick