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Showdown With the Shutdown: Tales of How the Government Closures are Affecting Real Estate

The effects of the government shutdown are rippling through the real estate industry, and practitioners are feeling the pain all over the country. Most of the complaints we’re fielding are about USDA loans, which have been entirely frozen. Real estate pros are seeing deals fall apart, as the Department of Agriculture has shuttered its mortgage division during the shutdown.

But agents and brokers whose clients hold every type of loan are getting slammed. Though the FHA is still operational, it has drastically reduced its staff, causing widespread delays in the processing of FHA loans. And while the IRS is down, it can’t verify tax documents tied to conventional, FHA, or any other loans. That translates to many real estate deals being put on hold — or just disintegrating.

It’s becoming a madhouse out there for many practitioners fighting to keep deals alive as the shutdown puts a stranglehold on the market. We’ve gotten a few of their stories.

David Harman Jr., ABR, CRS, GRI
Associate broker, Century 21 Harman
Orem, Utah

Everything that was once in the former townhouse of Harman’s clients is now in Harman’s garage: furniture, memorabilia, even a refrigerator full of food. His clients were about to get approval for a USDA loan at the end of September, and they had long picked out the home of their dreams. Then the shutdown happened, the loan was stopped dead in its tracks, and Harman’s clients — a married couple with two kids of their own and three foster children — had nowhere to go. They had already told their landlord that they would be gone at the start of October, and another tenant was already moving in.

“They’re first-time home buyers. The only way they could afford a home was through the USDA program,” Harman says. “It’s just so sad because these guys were so close to getting their first home, and they were so excited.”

The Friday before the shutdown went into effect, Harman received word that the USDA needed just one final question answered before approving the loan. The next Monday, it all fell apart.

Harman offered his garage as a place to store his clients’ belongings while they were forced to move in with a relative. Even then, their family was split up.

“I guess the foster kids are back with the state,” Harman says, adding that there’s no way they would have been allowed to stay with them in their current living situation.

To make matters worse, the sellers of the home Harman’s clients were going to purchase is now threatening to sink the deal. At first, they were only allowing a one-week closing extension when they found out the buyers’ loan was backed up because of the shutdown, Harman says. Now, the sellers say they’re not even sure they want to sell anymore. Harman says he continues to try to negotiate an extension, but “we don’t know how long an extension to ask for. Is it a day? Is it a month? We don’t know.

“I try to call every day and talk to [my clients],” Harman says. “That’s all I can do is talk to them and reassure them that I’m doing everything I can. … I don’t even know if they’re going to want to buy a house anymore. It’s been such a nightmare.”

Marsha Byrum
Salesperson, Coldwell Banker College Real Estate
Oxford, Ohio

“My clients were at the tail end of a USDA loan,” Byrum says. “They still have hope that the government will resume and they will close on their USDA loan.”

But drastic times call for drastic measures, so Byrum’s clients are starting all over again, applying for another loan as a backup plan. The clients, she says, are applying for a conventional loan this time, in hopes that it will be easier — and faster — to get while the government shutdown continues with no resolution in sight. But it’ll come with a big price.

“The conventional financing will end up costing them more each month, and now they have to use their savings for a down payment,” Byrum says. They were originally planning to use their savings to buy furniture, she adds.

“Not only that, but if they were going to go regular financing rather than USDA, there were other homes in other areas that could have been an option,” Byrum continues. “But they wanted to take advantage of the wonderful government-offered USDA financing.”

All of this has left a bad taste in Byrum’s mouth: “The government is like a common crook that pulls an unsuspecting person in with no remorse of not following through on its promise.”

Lori Young, SFR
Broker-president, Young Realty Group, Inc.
Naples, Fla.

Young’s frazzled. She represents sellers in several deals that are saddled on the sidelines because the IRS is unable to verify buyers’ tax return documents to approve their loans. Many of the deals are for short sales. One is for a property that has a tax lien filed against it. Young was in the process of trying to get the IRS to issue a document of release to the seller with the tax lien. But all of that is in limbo now.

“Overall, I approached the shutdown as an issue out of the real estate professional’s control and that I will monitor daily,” Young says. “Once reopen, we will continue to push our files.

“I’m not sure what is going on, but I’m lucky that my sellers and the buyers are all being patient,” she adds.

Who knows how long that patience will last, though.

Young has 16 short-sale deals on the table, and they’re all on hold “with some type of excuse blaming the shutdown,” she says. “Some are stating Fannie Mae or Freddie Mac are holding up approvals, and others are stating ‘the investor’ has not approved the deal. I’m a bit concerned about my short sales, which are homestead properties that need to close by year’s end to avoid any additional tax implications.”

Young says she communicates every day with her clients and updates them on any new information she learns related to their deals. That’s what helps keep them calm. But with all these balls in the air, it seems like Young could use some calming herself.

How does she do it?

“I go to yoga class,” she says.

Laura
Marketing manager, Keller Williams Realty
Sarasota, Fla.

By the end of October, Laura, who asked to withhold her last name, and her 8-year-old son will be couch-surfing. The single mom was in line to close on her USDA loan and move into her new home with her little boy by Oct. 20. But now that USDA loan processing has come to a halt, they’ll be making very different plans.

“Even if the government reopened tomorrow, they wouldn’t be able to process my loan until December,” Laura says. “I haven’t come up with a plan for what we’re going to do for the next couple of months.”

She had already committed to moving out of her current place by the end of October, and she doesn’t have the option of extending her stay, she says. Luckily, a few of her co-workers at her 150-person Keller Williams Realty office have offered to open up their homes to her and her son — but that comes with its own set of problems.

“Staying in someone else’s house who you’ve only known for a year, especially with an 8-year-old — it just seems like such an inconvenience to them,” Laura says. And then there’s her son, an even bigger and more important concern. “I want him to have a stable environment,” she says, “but we may have to house-hop for a while.”

Laura says that she has no family in the area. She’s even offered to pay extra to her home’s builder to move in before the loan closes, but the builder wouldn’t except the deal, she says. So until this mess can get straightened out, she’s taking it one day at a time.

“I’m very humble and resourceful — we’ll figure something out,” Laura says.

Pam Aguirre, CRS
Broker-associate, RE/MAX Legends Group
Indianapolis

Aguirre says one of her latest listings is a “show stopper.” It’s a completely renovated three-bedroom, four-bathroom single-family home with newly redone hardwood floors, a remodeled master suite with walk-in closet, new porch, self-closing cabinets, and new finishes. It came on the market just days after the government shutdown went into effect — and Aguirre hasn’t had a single showing yet.

“I feel our marketplace has gotten very quiet” since the shutdown, Aguirre says. “I’m not surprised by the slowdown. I think consumers in general are still very uneasy about the economy, their buying power, and the possibility that a government shutdown may bring a return of what happened to the housing market in 2008.”

The slow response to Aguirre’s listing, located in the car-racing enclave of Speedway, Ind., is all the more troubling because it’s close to the famed Indianapolis Motor Speedway, a major draw for the area.

“I was tweeting about a new listing coming to Speedway last week, hoping to draw some race teams or fans in. Nothing,” Aguirre says.

She admits that because renovation work on the home is wrapping up, she hasn’t had as many listing photos to show, and that could have an effect on buyer traffic to the property. But still, most of her listings that are in good condition, as this one is, have sold within a couple weeks of coming on the market, she says.

Even for properties in poorer condition, “the phone has been ringing and there have been showings,” Aguirre says. But right now, “the phone has been very quiet.”

Graham Wood

Graham Wood is a senior editor for REALTOR® Magazine. He can be reached at gwood@realtors.org.

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Comments
  1. Tim Knobloch

    We manage a property for an owner that had to move from the Washington DC suburbs to Texas. The tenant we have is a Doctor doing research for the National Institute of Health or a one year contract. The funding for her research is not happening because of the shutdown. Since she is not a federal employee she is not guaranteed that she will get paid. She lives paycheck to paycheck and will not have the rent if she doesn’t get paid. The owner in Texas is concerned that they will not collet rent if the tenant doesn’t get paid. The ripple effect of a shut down.

  2. For the most part, buyers in my area are just having serious slowdowns on their mortgage approvals…

  3. Annette Bukowski

    We at “Ground Zero” one year later from Super Storm Sandy cannot even find a flood zone! There was supposed to be a new actuarial site to help potential home buyers (or home owners) calculate what their flood insurance premiums might look like. It was to have been launched on October 1st- guess what? It is terrible here on the Jersey Shore and our waterfront buyers have literally “bailed out”

  4. Bob

    In some regards, we are “fragile” and so interconnected as a country. We need our government to lead us well.

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