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Posted by Ben T on January 16, 2010 at 17:18:43:

Can a buyer receive the tax credit if he buys a house via an unrecorded contract
for deed? The answer was not clear to me after reading the IRS page.

I'd like to sell a house to a buyer without actually deeding the house in case he
defaults. Contract for deed works fine in my state, but don't know if it qualifies
for the credit.

Ben

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Posted by EDWIN on January 16, 2010 at 23:48:16:

What have you got to lose? Claim it. Let the IRS deny it if they want, but chances are they aren't going to be asking you many questions. There is nothing about an unrecorded deed that should nullify a sale.

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Posted by Wayne-NC on January 17, 2010 at 09:36:23:

According to the DOS claus, it is a transfer of equitable title, as opposed to legal title. A title no matter what it is called still transfers and the buyer has all the benefits of ownership. As stated, let the IRS determine any future outcomes. That would be my defense barring any futher clarifications. Why is it not recorded? Wouldn't the buyer demand it?

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Posted by Ben T on January 17, 2010 at 11:35:41:

If it's not recorded it has no impact on the title unless the buyer takes
some type of legal action. I generally have them sign a quit claim deed
though as well so it may well not make that much difference. I've
never had a buyer demand it up to now, probably due to lack of
knowledge.

I do pay tax on the sale though.

Ben

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Posted by Kristine-CA on January 17, 2010 at 11:47:56:

Question about using an unrecorded land contract to sell: how do you
get the property back for non payment? Do you have a tenant
agreement as well?

In my farm area a contract for deed is messy if the buyer defaults. You
have a default on a contract...but if the buyer doesn't leave, you have
to get a judgment. A a regular sale via a promissory note and deed of
trust is faster and better here.

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Posted by Ben T on January 18, 2010 at 10:38:28:

No tenant agreement, it's all handled by the contract itself. Basically
the contract is voided, and the buyer is then evicted. My attorney
writes the agreement, handles the closing, and then performs the
steps necessary to legally terminate the contract if the buyer defaults.
Basically the "steps" are to send a demand letter giving 10 days to
correct the default.

I would not do a contract for deed in all states, because as you say, in
some states it takes a court action to foreclose equitable title, rather
than to simply evict. My understanding is that California is one of
those.

Ben

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Posted by prabax on January 19, 2010 at 04:09:52:

Someday I'll buy a home. That will be after home prices get sane. The credit markets are tightening up; that will only drive up requirements for down payments.

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Posted by JHyre in Ohio on January 19, 2010 at 11:43:26:

We've run hundreds of FTHBTC sales on LC/CFD through our office. Recording helps and we strongly recommend it, but is not mandatory IF the LC itself is carefully drafted to fall w/i Tax Court guidelines of what constitutes a "sale". So far, our LC has not been rejected by the IRS, even once.

John Hyre
Attorney/Accountant

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Posted by Edwin on January 19, 2010 at 20:17:16:

John, just curious, do you know how many times your LC sales have been reviewed/scrutinized/audited by the IRS? I know people who send in inaccurate tax returns all the time, mostly because they were sloppily prepared and have a few unintentional mistakes. The IRS won't catch the errors unless they review or audit the return. Not trying to disagree with you, but claiming your LC has never been rejected by the IRS only tells part of the story. Never rejected because it's written properly, or because it somehow managed to escape a close review by the IRS?

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Posted by Dave T on January 20, 2010 at 12:37:14:

The IRS only requires that a sale take place and is documented, preferably on a HUD-1 signed by all parties to the transaction.

There is no requirement to record a transfer of title as long as the buyer has all the benefits and burdens of ownership.

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Posted by JHyre in Ohio on January 20, 2010 at 13:57:09:

Nobody knows exactly how much scrutiny is applied, nor how often. The number is certainly much higher than the normal rate of audit because the fraud rate on this credit is very high. We do see almost 100% reponse of some sort to claims filed without any backing at all (submitted by others, as we submit a ton of evidence and get far fewer letters, much less denials, in response), and we know that there is an IRS unit dedicated solely to reviewing FTHBTC requests - the scrutiny is clearly much higher than normal audit rates and written challenges from the IRS very common in general. Exactly how much? Dunno....just that some sort of examination is near certain, with a higher degree of examination if little or no evidence is submitted to back the claim.

John Hyre
Attorney/Accountant

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Posted by David Krulac on January 20, 2010 at 15:21:38:

you are presenting it as a transfer of wonership. and expecting to get the Federal tax credit.

With an unrecorded agreement, which does favor the seller as the bueyr can not encumber the title, a pre-signed and notarized and held in escrow deed, I prefer a warranty deed to a a quit claim deed, though in both cases the grantor is conveying what they have.

a tenant agreement or a a lease option, or similar types of documents IMHO fail the IRS test for property transfer, but a Contract for Deed, or whatever name you call it does meet the IRS requirementsa, though i am neither an attorney nor accoutnant, and John Hyre is BOTH. I belive that he and I are in agreement.

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Posted by Kristine-CA on January 20, 2010 at 16:43:34:

Hi David. I'm not having any trouble understanding that that an
installment sale qualifies for the tax credit. I'm just trying to figure out
how and why other investors don't transfer title when "selling". I'm
always curious about how people manage non-performing CFDs. They
are a mess here because you don't have what you need to evict.

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Posted by David Krulac on January 21, 2010 at 17:04:44:

I agree:

Some sellers use ICFD as an additional profit center. 1 investor I know brags that he has gotten all the properties that he "sold" back. To me the idea is to close these properties not to generate addional funds for the seller.

The only reason to seller finance is if the buyer can't get their own indepednet funding. A couple of years ago anybody could get a mortgage, so seller financing was superfulous.

Though not my first chice, I'd consider selelr financing if either the property or the buyer could not get financed. But I'm still looking to ultimately close.

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Posted by SedonaSam on February 01, 2010 at 06:25:06:

As an aside, can't anyone spell around here? Geeezzzz!