Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - January 25, 2010 New IRS Homebuyer Credit Form and Documentation Requirements Announced IRS Form 5405, “First-Time Homebuyer Credit and Repayment of the Credit,” (http://www.irs.gov/pub/irs-pdf/f5405.pdf) is very helpful because it reveals many of the qualifications for the first-time homebuyers $8,000 tax credit and the $6,500 tax credit for repeat homebuyers – the same form is used for both. The instructions at http://www.irs.gov/pub/irs-pdf/i5405.pdf are also well worth the read. One good way to answer a homebuyer with questions about the credit may be to provide these two documents because they are very complete in covering the revised rules. Now that they new form and directions are available, homebuyers claiming the credits can begin to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements – they will not be able to file electronically. In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:
In addition, the new law requires eligible repeat homebuyers to show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:
Congress mandated all this extra documentation after audits uncovered widespread abuses by applicants for the $8,000 credit. Among these were fictitious home purchases in which taxpayers or tax preparers sought -- or obtained -- credits on properties that never were sold or bought. This time around, the IRS says it will rigorously investigate all claims filed, starting with a review of the documentation submitted. The new IRS rules also spell out situations in which recipients of tax credits may have to repay them:
THE TIME HAS COME FOR BUYERS TO GET MOVING! THERE ARE ONLY 14 WEEKS LEFT TO SIGN A CONTRACT AND JUST FIVE MONTHS TO CLOSE! More details on claiming the credit can be found at http://www.irs.gov/newsroom/article/0,,id=218336,00.html?portlet=7 and http://www.irs.gov/newsroom/article/0,,id=204671,00.html. IRS YouTube videos are available at http://www.youtube.com/IRSVideos. NAR REGULATORY ISSUE ALERT: FHA ANNOUNCES CHANGES The new changes are a victory for homebuyers because the FHA has carefully balanced the need to make financial reforms with the need to keep the FHA available to a large segment of consumers. This is exemplified by the 3.5 percent minimum down payment requirement and the ability to finance the up-front mortgage insurance premium. The FHA announced changes in the following areas:
For more information visit http://www.realtor.org/government_affairs/fha_resources. 1.) Offer to Purchase - Financing Contingency There is no standard wording. The necessary and appropriate language for the buyer to accept or approve the loan commitment from the lender will be a matter of agreement between the buyer and the lender. As for the second part of the question, the key is to document in writing that the buyer has reviewed the loan commitment and is authorizing [fill-in-the-blank: broker, lender, etc.] to deliver a copy of the loan commitment to the seller in satisfaction of the financing contingency contained in the buyer’s offer to purchase. This can be done on the loan commitment itself or by a separate writing accompanying the loan commitment. 2.) Disclosure - Broker Disclosure QUESTION: An agent received an offer from an agent and he is saying that the buyer is financing with a private investor and will provide a loan commitment within one week of acceptance. He indicates he is an agent of seller but he is purchasing the property for himself. How can he be agent of the seller? For the buyer’s signatures, he states he is a member of a real estate company, specifically a LLC. Does he have to disclose in the offer that he is a licensee? ANSWER: A buyer who is a member of an LLC must disclose that the buyer is a member of the LLC and obtain the prior written consent of all parties to the transaction. Wis. Admin. Code § RL 24.05(2) provides: DISCLOSURE OF INTEREST. A licensee acting as an agent in a real estate or business opportunity transaction may not act in the transaction on the licensee's own behalf, on behalf of the licensee's immediate family or firm, or on behalf of any other organization or business entity in which the licensee has an interest without the prior written consent of all parties to the transaction. For the purpose of this subsection, a licensee may obtain the written consent in the offer to purchase, option, lease or other transaction contract. Article 4 similarly provides in relevant part that, “In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative. (Amended 1/00)” Standard of Practice 4-1 indicates that these written disclosures should be made before the signing of any contract. A buyer may be a member of the LLC and be an agent of the seller because there is no specific rule or law against it. At the same time, it is not without risk and an agent endeavoring to be an agent of the seller (from the same company as the listing broker) or a subagent and yet have an interest in the entity purchasing the property would appear to be asking for conflict of interest allegations if there is trouble in the transaction. A subagent is defined in Wis. Stat. § 452.01(7r) as “a broker who is engaged by another broker to provide brokerage services in a transaction, but who is not the other broker's employee.” If the agent is a subagent, the agent owes customer level duties to all persons in the transaction and the subagent may not place his interests ahead of the interests of the seller or provide advice or opinions contrary to the interests of the seller, unless required by law, per Wis. Stat. § 452.133(4). This would be difficult to do in the described scenario given that the subagent has a substantial interest in the buyer. It would likely be much better if the agent with an interest in the LLC would work as a buyer’s agent for the LLC. The § RL 24.05(2) consent must still be obtained but if the agent’s client is the buyer, then the conflict of interest issues fade away. 3.) Landlord/Tenants - Eviction QUESTION: Re: Property management. A broker has a property management agreement with a client and a tenant has failed to pay rent so owner wants to evict the tenant. The broker has delivered a 5-day notice to pay or vacate and the 5 days has passed. Now the client wants the broker to file an eviction action in small claims court. Is broker allowed to do this? How to proceed? ANSWER: The owner or an attorney may need to file the eviction action. Wis. Stat. § 799.06(2) provides, “A person may commence and prosecute or defend an action or proceeding under this chapter and may appear in his, her or its own proper person or by an attorney regularly authorized to practice in the courts of this state. Under this subsection, a person is considered to be acting in his, her or its own proper person if the appearance is by a full-time authorized employee of the person. An assignee of any cause of action under this chapter shall not appear by a full-time authorized employee, unless the employee is an attorney regularly authorized to practice in the courts of this state.” For basic information regarding small claims actions, see the Basic Guide to Wisconsin Small Claims Actions online at http://www.wicourts.gov/about/pubs/circuit/docs/smallclaims.pdf. For a description of the stages of small claims lawsuits and the resources available from the Wisconsin State Law Library go to http://wilawlibrary.gov/topics/justice/civil/smallclaims.php. READ MORE ABOUT IT: 4.) Offer to Purchase - Dates and Deadlines QUESTION: The offer has a pre-approval letter due 3 days from acceptance. The counter-offer from the buyer was “accepted” by the seller late Thursday night but not delivered until Friday morning. Do you start counting on Friday so the pre-approval letter is due by Sunday or because it wasn't delivered until Friday do you start counting on Saturday so it’s due by Monday? ANSWER: Per the offer to purchase, “Deadlines expressed as a number of ‘days’ from an event, such as acceptance, are calculated by excluding the day the event occurred and by counting subsequent calendar days. The deadline expires at midnight on the last day.” The offer to purchase also indicates, “Acceptance occurs when all Buyers and Sellers have signed an identical copy of the Offer, including signatures on separate but identical copies of the Offer.” Therefore, from the facts provided, acceptance occurred when the seller signed (presuming that occurred on Thursday). Thus Friday is day one, Saturday is day two and Sunday is day three. Debbi Conrad |