FTHB - Purch Completed in June 2010

[JohnH]

Taxpayer who other wise qualifies for the FTHB credit entered into a binding contract well before Apr 30 and plans to close by June 30. However, there were some material changes to the contract in early June due to some requirements imposed by the lender regarding closing costs. Assuming the closing still takes place prior to June 30, is it likely that the taxpayer will have any problems claiming the FTHB credit?

The question revolves around the fact that had the taxpayer not agreed to the lender's changes, there would no longer have been a binding contract. Anyone have any thoughts on this or experience with a similar situation?

[Gretel]

My thoughts are they I believe the first binding contract counts. Almost all Buy-Sale agreements have contingencies and that cannot possibly mean that this original contract could be invalid for FTH purposes.

[JohnH]

Thanks Gretel. Thats more or less the way I was leaning. This involves some special people to me (both client and agent), and I want to be as sure as possible with my advice, given that so much of this is uncharted waters with IRS.

A strict reading of the Nov 24, 2009 notice leads me to see a subtle difference between "entering into a binding contract" and "settling on the purchase" which simply means that these are two components of a single process. Even if there are a few changes in the agreement along the way, it seems that the key element is that the property actually purchased is the property that originally went under contract and that the essential elements of the transaction stay the same.

[Black Bart]

Can't speak for the law, but

I'm with Gretel - I think it'll fly (probably without any glitch at all).

The problem is the basics (gettin' 'em to even look and see that you sent the contract). Odds are you'll get a letter in a month or so asking you to send the same stuff you're sending now all over again. No point in worryin' about the fine distinctions when you're casting pearls and sellin' literature by the pound.

[Burke]

A strict reading of the Nov 24, 2009 notice leads me to see a subtle difference between "entering into a binding contract" and "settling on the purchase" which simply means that these are two components of a single process. Even if there are a few changes in the agreement along the way, it seems that the key element is that the property actually purchased is the property that originally went under contract and that the essential elements of the transaction stay the same.

That is correct, and you only have a problem if the contract falls through before closing. If the dates are met per the IRS rules, all is okay. This is not an unusual occurrence in real estate sales.

[ChEAr$]

Look at it this way, John. There was a binding contract to buy the house before 4/30, and
qualifying for a mortgage notwithstanding, the client still qualifies. Let's separate the sheep
(the house contract) from the goats (the mortgage).

Some people will say when asked, yeah, me and the bank owns the house. Truth is,
that the bank owns nothing.

[JohnH]

Good point Harlan.
From the bank's perspective, there's no need to own houses.
Politicians make the rules about how houses are owned, so it's infinitely more profitable to own politicians than houses.