WORLD PROPERTY CHANNEL ®

Home buyers caught a break Wednesday night.

After weeks of bickering, Congress extended the $8,000 tax credit for first-time homebuyers and the $6,500 tax credit for second-time buyers by three months to Sept. 30.

Legislators beat the existing June 30 deadline by only a few hours.

President Barack Obama was expected to sign the legislation today or on the weekend.

One of the few real estate professionals who predicted the extension was Mitchell C. Hochberg, a principal at Madden Real Estate Ventures, LLC in New York City.  Hochberg told Real Estate Channel on April 12:

President Barack Obama

"Congress will extend the credits to mitigate the impact of two recent events:   The Federal Reserve ending its program of buying mortgage backed securities and the recent rise in mortgage rates (30 year fixed rate mortgages climbed to 5.31% from 5.04%) both of which will have a negative impact on home sales."

Termination date is April 30. The eight-month program, first announced in February 2009 and scheduled to end Dec. 1, 2009, was extended in November 2009 to April 30, 2010.

Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The bill only allows people who already have signed contracts to finish at the later date.

The House approved the measure on Tuesday. Legislation in the Senate, sponsored by Majority Leader Harry Reid, was approved Wednesday night by unanimous consent.

Congress had tried repeatedly in the past month to extend the deadline by putting the measure into a big bill that would have extended expiring tax provisions and unemployment benefits, but that bill kept failing test votes in the Senate.

At the 11th hour, Congress put the measure into a separate bill, the Homebuyer Assistance and Improvement Act, H.R. 5623.

The extension only applies to people who had ratified contracts in place as of April 30 that have not yet closed. It does not create a new tax credit.

The newly purchased home must be used as a primary residence. Other restrictions apply.

The new legislation makes the extension of the credit retroactive.  However, some buyers could face unexpected complications, according to industry sources.

That is because contingency clauses in purchase contracts and the expiration of interest rate locks were based on the June 30 expiration date for the tax credit, and the closing of many properties may be more complicated even though the credit will be extended.

The National Association of Realtors estimates as many as 180,000 homebuyers who were under contract by April 30 missed the closing deadline, including 17,700 in California, 15,340 in Texas, 14,830 in Florida and 9,130 in New York.

Many of the transactions involve short sales, which require the lender to agree to take a loss on the seller's mortgage, and generally take much longer to close than standard sales.  As many as 15 percent of distressed property sales currently are short sales.

Some new home sales also are taking longer than normal to close because of demand. New-home contracts rose 30 percent in March and 15 percent in April, the biggest two-month gain in records dating to 1963, according to the Commerce Department.

About a third of the April signings were for homes under construction, and a quarter were for those that weren't started.

Builders have been working day and night to complete homes before the deadline. A third group of delayed closings were caused by the extraordinary demands on lenders, appraisers and escrow agents by the numbers of closings tied end of the credit in some markets.

The U.S. Treasury reports that through March 27 some 2.2 million people had filed for the credit and the cost to the Treasury was nearly $16 billion, according Real Estate Economy Watch.com

Please see related Real Estate Channel posting:

Speculation Hats Up on Home buyer Tax Credit Extension, April 12, 2010

---