U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL
HOUSING COMMISSIONER
www.hud.gov espanol.hud.gov

May 29, 2009

MORTGAGEE LETTER 2009-15

TO: ALL APPROVED MORTGAGEES

SUBJECT: Using First-Time Homebuyer Tax Credits

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an
$8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to
promote homeownership.

This mortgagee letter provides:

• Basic information on the first-time homebuyer credit obtained from the Internal Revenue
Service (IRS) website. Complete information on how the first time homebuyer tax credit
works, including the eligibility requirements for the tax credit, the amount of the tax
credit that a first-time homebuyer may be eligible to receive, and how a homebuyer may
claim the tax credit is available on the IRS website at
http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7.

• Guidance on how FHA-approved mortgagees and FHA-approved nonprofit organizations
as well as Federal, state, and local government agencies or instrumentalities may assist
homebuyers that are eligible for the tax credit.

I. About the First-Time Homebuyer Tax Credit

Please check the IRS website to ensure you have up-to-date information. A brief overview
of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are
attached for reference.
Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit
will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued
in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance

Secondary Financing
Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the
National Housing Act to use the current authority to offer tax credit advances with second liens in a
manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies
and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.

Conditions:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result
in cash back to the borrower.
• The second lien may not exceed the total amount needed for the down payment, closing
costs, and prepaid expenses.
• Secondary financing may be “soft” (silent) or require a monthly repayment.
• If payments are required, they must be included within the qualifying ratios and, when
combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
• If the tax credit advance loan has a short term for repayment, it must also provide that if the
borrower fails to repay by the designated deadline, principal and interest payments begin
automatically or the loan converts to a “soft” second.
• The secondary financing may not require a balloon payment before ten years.

Purchase of Tax Credit

FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and
local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by
the homebuyer.

Conditions:
• The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the
homebuyer based on the computations of form IRS 5405;
• The borrower must submit a signed certification that the tax credit is not subject to offset
due to other indebtedness.
• A copy of the borrower’s tax refund and/or the IRS 5405 must be collected and retained in
the FHA case binder.
• Any costs attendant to the purchase of the tax credit are to be nominal and discounting the
anticipated credit to cover the costs and expenses of the transaction must be reasonable and
disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the
anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees
and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
• Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for
FHA insurance may not consist of any funds (including funds derived from a sale of the
homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity
that financially benefits from the transaction (or by any third party or entity that is
reimbursed, directly or indirectly, by the financially benefiting person or entity).
Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the
seller, or any other person or entity that financially benefits from the transaction (or any
third party or entity that is reimbursed, directly or indirectly, by the financing benefiting
person or entity), may not be used to meet the 3.5% minimum downpayment, but may be
used as additional downpayment, buying down of interest rate, or other closing costs.

Due Diligence

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence
measures including, but not limited to:

• Require the homebuyer to draft and provide the IRS form 5405 “First-Time Homebuyer
Credit.”
• Contact the borrower’s employer and review pay stubs to confirm there are no
outstanding garnishments.
• Review the homebuyer’s credit report to ensure there are no unpaid student loans, or
other obligations that could be offset against the credit.
• Validate that all of the eligibility requirements for the tax credit are fulfilled
• Review previous tax returns and IRS tax assessment letters, if any, to determine that the
borrower does not have unsettled obligations to the IRS

III. Monitoring

In order to track the tax credit monetization activities, FHA will require FHA-approved
mortgagees to input into FHA Connection the following data:
• Name and EIN of the party who purchased the tax credit,
• The amount of the anticipated credit, and
• The amount the homebuyer paid for the monetization services.
The lender must also collect and maintain in the FHA case file the documentation that
validates all of the tax credit monetization data submitted via FHA Connection.
FHA will monitor the purchase of tax credit transactions closely. Charging of excessive
fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction
without FHA approval may result in referral to the Mortgagee Review Board, and particularly with
respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade
Commission, or referral to the appropriate State Attorney General office, as may be applicable.
If you have any questions regarding this mortgagee letter, please call FHA’s Resource
Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may
access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,
Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner
Attachments
IRS Form 5405
IRS Tax Credit Summary

To View the Using First-Time Homebuyer Tax Credits Document Click Here

When making an offer you will be giving the seller a certain amount of time to respond. It is courteous to give 24 hours. Some sellers may call you and tell you that they need more time and you will be able to say yes or no.

Basically a time limit means that by the end of that time, the seller is to respond to you. Then, they will set a new time limit for you to respond. Officially after one of you has not answered inside the time limit, the offer is void.

Negotiating a contract can take days. We attempt to have everything done within 48 hours. An exception to this is bank owned properties. They are on their own time frame and really don't care about what you have put in the contract. Some bank owned properties have taken weeks to get negotiated to completion.

In the State of Georgia a Homestead Exemption (reduction in real estate property tax) may be entitled to the homeowner of record provided the home was owned by the homeowner as their legal residence as of January 1 of the taxable year. To be granted the Homestead Exemption the owner must occupy the home and the home must be considered their legal residence for all purposes. 

Homeowners must make application to the tax commissioner’s office or the tax assessor’s office in order to receive the benefits of the Homestead Exemption. Beginning in 2005 applicants could actually file for 2006 benefits prior to the beginning of the 2006 tax year. In any case homeowners have until March 1 of the tax year to file for the exemption. Some counties have a deadline of May 1, however if you use March 1 as a standard you will be safe. Should a homeowner not file on time they lose the exemption for that tax year. The nice thing is that once a homeowner files for the Homestead Exemption you do not have to reapply annually, once granted the exemption remains in place as long as the property is the legal and primary residence of the homeowner. 

All purchasers of real property should make application to the county tax office that the property is located in for the Homestead Exemption as soon as possible after closing on the property. While it is understandable that things will be hectic for a bit with the move and all, if it is put off too long it may well be forgotten. Remember that not making application within the time line for your county of residence will result in losing the exemption for the year. That is a heavy price to pay for not allowing an hour or so to get what is rightfully yours. 

In many instances the county will mail an application to the new owner of record; however this is not always the case. Take a proactive approach toward obtaining this tax benefit that you should be entitled to. 

Upcoming Exemption Deadlines by County (this information has been researched on the websites for each county; however, you should check with each tax center to ensure accuracy of this information)

• Dekalb County: (https://dklbweb.dekalbga.org/taxcommissioner/index.asp?pg=homestead)Homestead exemption applications are accepted year-round, but current-year exemptions must be applied for between Jan 2 and March 1 
• Fulton County: Homestead exemptions are due by March 1, 2008 and can be completed online 
• Cobb County: (http://www.cobbtax.org/Forms/HtmlFrame.aspx?mode=content/Exemptions.htm&LMparent=189) You can apply for exemptions year-round by mail or in person; however, you must apply by March 1 to receive the exemption for that tax year. 
• Gwinnett County: (https://ssl.gwinnetttaxcommissioner.com/Property/information/DueDates.aspx) Application deadline is March 1.

In Georgia, the closing attorney represents the lender. The work that the closing attorney is asked by the lender to perform through the closing – transferring title, setting up the lien against the property for the lender, collecting and disbursing funds as required by the terms of the transaction – is the essential work that the parties also seek to accomplish.  Other services the closing attorney will perform can be, but not limited to: titles, liens, boundary lines, commercial leases, mortgages and foreclosures, zoning issues, construction defects, title examinations, transaction settlements. etc

For this reason, most buyers and sellers rely on the competence and professionalism of the closing attorney in executing the closing in lieu of hiring their own lawyers. Even so, buyers and sellers always have the option of hiring a lawyer to personally represent them during the closing process.  
 

Main Points of Pending Settlement:
www.stuccosettlement.com

The deadline to file a claim has passed.
Fairness hearing was held on October 1, 2002. The court will decide if the settlement should be "granted final approval as fair, adequate, and reasonable, and in the best interests of the Settlement Class."
The preliminary approval of the settlement includes cash compensation from Dryvit, free property inspections, Moisture Free Warranties, and other benefits.

You must prove that you have Dryvit EIFS (Exterior Insulation and Finish System) installed on your home.
You must have owned the property as of June 5, 2002.
One and two family dwellings and town homes are covered. "Mixed products" are not included in the lawsuit. It must be a fully Dryvit product.

The process:
The deadline to file a claim has passed.

The Claim administrator will determine if your home has Dryvit. A Claim administrator will send an independent inspector to your home to assess the condition of the Dryvit. If the inspection report confirms that it is Dryvit, the class member does not have to pay for the inspection.

The inspection report is accompanied by an Estimated Repair Cost Report.
Repairs must be made by a certified contractor hired by the class member. Repair costs are paid by the class member and can be reimbursed by Dryvit based on certain conditions set by the settlement.

A second inspection must be conducted to ascertain all repairs were made properly, at no cost to the class member, as long as all the repairs were properly made.

Moisture Free Warranties will be issued once all repairs are made.
Dryvit does have certain financial conditions concerning repairs and warranties. To get an accurate view of what the class member pays for and what Dryvit pays for, read the Notice of Proposed Class Action Settlement at www.stuccosettlement.com.