The list of real estate-related stressors is virtually limitless. Whether you have to decide on whether to rent vs. buy or whether to sell vs. stay put, decide on a list price or an offer price, or pick a buyer’s broker or a listing agent, there is seemingly no end to the high-stakes decisions you must make and triggers you must pull.
Yet there is one real estate phenomenon that can create more stress than even these tough choices: deadlines.
1. December 31st, 2012: Expiration of Mortgage Debt Forgiveness Relief Act (unless extended). Normally, if you lose a home to foreclosure or settle a home loan for less than the balance owed on it through a principal reducing loan modification, short sale or other settlement, the lender is required to report the amount of cancelled debt to the IRS as taxable income. That would mean if you lost a home to foreclosure, you could face the double-whammy of having to pay thousands of dollars for the privilege of doing so in the form of income taxes.
In light of the housing recession, though, a federal law was enacted exempting the vast majority of such homeowners from taxation on their forgiven mortgage debt in cases of foreclosure, short sale or loan modification: The Mortgage Debt Forgiveness Relief Act. That’s the good news. The bad news is the Act is set to expire the last day of this year, which means that if you lost your home or closed your short sale or loan modification after December 31st, you might face hefty taxes on it. Given the timeline it is taking banks to foreclose on homes, decide on loan mods and greenlight short sales, if you haven’t already put a negotiation into play, it’s possibly too late to do so and definitively meet this deadline, but you should certainly get a move on.
Fortunately, the President has proposed that this deadline be extended through 2014, and it seems likely that Congress will take him up on this proposal.
2. December 31st of every year: Deadline to close escrow or pay interest and taxes for homeowner tax deductions. Every year, homebuyers scramble to get escrows closed by the end of the year, so they can claim their prepaid mortgage interest (which makes up a good chunk of your closing costs), points and origination fees (another big chunk of closing costs) and any additional mortgage interest paid in the course of making monthly mortgage payments on the tax return they can file as early as January of the following year.
In the same vein, cash-flush homeowners who need some breaks from Uncle Sam should consult with their tax advisors about paying their January mortgage payment before the year is over. Because the January payment covers the mortgage interest charges for December, it is deductible and should show up on your mortgage interest statement from your lender if you get the payment in by their last business day of the year. You might be able to get a similar tax boon by paying some of your property taxes early but, again, you should consult with your tax pro on this to put an action plan in place.
3. Closing, funding, underwriting and wiring deadlines. Every real estate sale contract has a closing date in it, whether it’s a particular month/day/year or a simple statement like 30 days after the seller accepts the offer. These dates are decreasingly met, as a rule, because of delays in obtaining appropriate appraisals, loan approvals or even green lights from a short sale lender or bank owned home’s asset manager.
That said, many transactions do have stringent closing deadlines, whether because:
· the REO sale contract imposes a daily penalty on the buyer for a late close, or
· the buyer or seller has personal reasons for needing to move in or out, or
· a late close will require the buyer to bring in more cash for closing costs.
So it's important for buyers and refi-ers to know what agents know: closing timelines are a little like domino effects. The close date happening on time is dependent on a long series of other events taking place on time.
For closing to happen on a certain date, the loan must fund on a particular date, and for that to happen, both sides must sign off on various documents on a certain prior date and the buyer must wire their cash into the escrow holder by a particular date (something that often requires an in-person visit to the bank during the workday, FYI). When you get into contract on a home, sit down with your real estate broker or agent and your mortgage broker or banker to get a complete picture for how these end-of-transaction dependencies and timelines will need to be executed. This will avoid the surprises, panics and timeline-destroying glitches that can happen when these dates and in-person appointments are not planned out in advance.
4. Property Tax Appeal Deadlines. In the last few years, millions of homes have had their assessed value reviewed and lowered, lowering their owners’ property tax bills in the process. And some haven’t -- fortunately, every tax assessor I know of now has a fairly simple process in place by which a homeowner can protest that their home’s assessed value is higher than its actual fair market value, and appeal for it to be lowered. Unfortunately, I’ve heard a number of homeowners complain recently that they just missed the deadline to appeal their home’s assessed value, and will now end up paying several thousand dollars in excess property taxes before the appeal process opens back up.
If you own a home and think its market value might be lower than its assessed value, visit your county tax assessor’s website, stat, and educate yourself about the process and deadlines by which you must comply to appeal its assessment.
5. Offer and Response Deadlines. Some buyers approach today’s market with a bonanza-style approach, thinking that market dynamics will empower them to simply point, click and pocket whatever property they want, at whatever price they want. Reality check: there is a fair amount of competition among buyers to score the best properties at the best price points, and banks selling foreclosures have some serious unilateral procedure and contract guidelines of their own.
So, rather than frolicking through the inventory of homes on the market at your own pace, it’s critical for buyers to pay attention to whether new listings that interest you have offer deadlines (sometimes this information is only able to be seen easily by your agent, so you might need to ask), and to comply with these deadlines if you take a serious liking to the property. In some cases, this might even work in your favor, as many banks selling foreclosures now will review offers from buyers in the market for a personal residence earlier than they will entertain offers from investors.
It also behooves buyers, sellers and homeowners alike to keep a very close eye on the response deadlines that are contained in offers, counteroffers, short sale and loan modification documents they receive, especially if there is a bank involved on the other side. Many of the automated systems banks and mortgage servicers use to manage these documents will completely kill all the hard-won progress that has been made on your transaction, application or request if your response is not entered on time.
6. Contingency Removal Due Dates. Most buyers these days negotiate some sort of contingency into their home purchase contract. A contingency is simply the right to back out of the deal, and the most popular home buyer contingencies empower buyers to bail if:
· the property has condition problems that are revealed by the buyer’s inspections,
· the property doesn’t appraise for the agreed-upon purchase price, and/or
· the buyer’s loan falls through.
Contingency periods – the timeline in which the buyer has the right to back out, without losing their deposit money or incurring other liability – run from the date the buyer and seller both agree in writing to the terms of the sale through the contingency deadlines set forth in the contract. These contingency deadlines, the date by which the buyer must either exercise their contingencies (signing a form badeadlinecking out of the deal) or remove them (signing a form letting the seller know they plan to move forward with the transaction, waiving the right to back out, and often increasing the buyer’s deposit and/or making any existing deposit non-refundable) are negotiable, but typically run anywhere from 7 to 20 days post-contract signing.
For a buyer, the contingency timeline is a flurry of inspections, appraisals, responding to loan underwriter requests and the like. It’s critical to keep an eye on the calendar so that you can remove them on time or request an extension in advance, if necessary, avoiding demands and drama with the seller.
7. Objection Period Expires. Here’s where contingencies go wild, people – some states and almost all REO/foreclosed home sale contracts in every state turn the whole contingency process on its head. They allow buyers to back out for a time, for certain reasons, but if the buyer doesn’t proactively object or back out by the end of this ‘objection period,’ they lose the right to do so, and may lose their deposit or incur additional liability if they try to cancel the deal later.
You can see why this is essential timeline to track. If your inspections and repair estimate gathering, appraisal or loan approval look like they might run past this deadline, you absolutely must secure an extension of this time period or be prepared to make a decision whether to move forward or back out of the deal by the time it runs out, all things considered.
8. Rate Lock Expiration Deadlines. Mortgage loan approval letters are issued with details specifying the approved loan amount, interest rate, loan type and other terms – as well as the date on which the rate and terms will expire, if the loan has not been funded. While this information is great to know, buyers (and refi-ers) are rarely in control of how quickly the sequence of events which much take place between loan approval and funding unfolds. Not only do you have to find the right home, you have to get into contract on it (which may take weeks or months, with a short sale or bank-owned home), and then inspections, appraisals and underwriting must take place.
It’s important to be aware of when your rate lock expires, and even more important to work with your mortgage pro to put a plan in place for what will happen if expiration looks likely. Your mortgage broker might be able to work with the lender to help you ‘buy’ an extension, or might simply advise you that rates are likely to be lower after expiration and that you’re better off just letting it lapse and obtaining a new, lower rate.