business

Christian and Samantha Bang were newlyweds who thought homeownership would be out of reach while they saved money and paid off debt. All that changed in February when they qualified for an $8,000 home buyer's tax credit from the federal government that they planned to use toward a house in Bloomington. Five months later, on the eve of Wednesday's closing deadline to get the credit, their loan still hasn't closed.

"It's been a nightmare," Christian Bang said. "If we can't get this done, we're through. We'll have to back out of the deal."

They're among an estimated 180,000 home buyers nationwide at risk of forfeiting their tax credit because of delays at the closing table, many of them because banks have been slow to process short sales and foreclosures. Last week, efforts in Washington to extend the closing date failed, leaving buyers who go through with their closing without the credit to hope it will be granted retroactively.

The credits -- $8,000 for first-timers and $6,500 for repeat buyers -- were aimed at helping stimulate the housing market during the biggest slowdown since the Great Depression. It seemed to work. Sales surged, giving the industry a much-needed boost in sales -- confidence -- at a time of record foreclosure rates and falling prices.

Officials at the Minnesota Mortgage Association say thousands of Minnesotans could be at risk of missing out on the credit. According to the chief economist for the National Association of Realtors, 25 to 30 percent of buyers who signed purchase agreements in April won't get to the closing table by June 30.

In the Twin Cities metro area there were 5,781 pending home sales during April alone, according to the Minneapolis Area Association of Realtors. That puts more than 1,500 homes sales at risk during a single month.

The mortgage and title industry, already battered by a deluge of short sales, foreclosures and increased scrutiny, drastically reduced its workforce when home sales began to fall, and some say it was unprepared for the new business that came with the tax credit.

Wells Fargo, the nation's largest mortgage originator, wouldn't say how many mortgages won't close by the deadline, but said that increased volume as a result of the tax credits "will make it challenging." The company said it hasn't hired additional staff to process the additional files, but is re-leveraging existing resources and is focused on setting "proper expectations" for its customers.

Greg Mason, president of Edina Realty Title Services in Edina, said that with an increase in tax credit-related sales, the company has hired permanent and temporary support staff. They've also tried to pace their closings. During a typical month, for example, 30 to 40 percent of all closings happen during the last three days of the month. The company is now on pace to close only 15 percent of its June loans during the last three days of the month.

Mason says the number of loans in jeopardy in Minnesota is relatively small compared with the overall market. "It's a minimal number in Minnesota," he said. The mortgage industry "really encouraged people to schedule closings early."

"It's horrid, it's a travesty," said the Bangs' real estate agent, Pam Kraska of Remax Advantage Plus. She's at wit's end about their situation, which involves a short sale (a house that's being sold for less than is owed on the mortgage). She makes almost daily calls to the listing agent in hopes of expediting the process. To no avail. And she has five other home buyers who are in the same situation, either because they're trying to buy a short sale or a foreclosed home.

The Bangs feel betrayed. Shortly after they signed the purchase agreement for the three-bedroom starter house in Bloomington, they gave their landlord notice that they'd be moving out of their Burnsville apartment and rented a storage container that's costing them almost $150 a month in anticipation of having to move before they've closed. They still haven't received a response from the lender.

Chuck Wacker is also dealing with an unresponsive bank in an attempt to purchase a short sale. He and his wife have already sold their house and are waiting to close on their next one so that he can enroll their five young children in a new school district. But nearly five months after signing a purchase agreement, he's still waiting for a closing date.

"It's been an emotional roller-coaster," he said.

Wacker said he's trying to understand why the banks haven't responded to his offer to buy the house in time to meet the June 30 deadline but has proceeded with the sheriff's sale -- a fatal step towards foreclosure -- in the midst of his attempts to buy it.

"That means you [the lenders] have no interest, or are not serious in approaching this as a sale," he said. "I have made phone calls and sent letters saying 'help me understand why there is no progress.' This would be a win-win."

Wacker said the situation has given him a terrifying glimpse into the ailing economy.

"If this is how the wheels of commerce are turning right now, I say it's going to be a long arduous process for the country and the economy."

It's usually to the advantage of a lender to avoid foreclosure because it can be a lengthy process that can cost upward of $50,000 per house.

Chris Galler, chief operating officer of the Minnesota Association of Realtors, says that it's not just buyers and sellers who will suffer from sales that don't close. "Those were commission dollars in a very tight and slow real estate market," he said, adding that short sales that don't close will eventually become foreclosures at a time -- summer --when buyers are already in short supply. "And that will make the foreclosure problem a worse situation."

Jim Buchta • 612-673-7376