As Another Government Shutdown Looms, What Would One Mean for Land Transactions?

The government shutdown that occurred on January 20th only lasted two days; it inconvenienced some people, but it was a non-issue for most of us. The House and the Senate voted on January 22nd to end the government shutdown, and President Donald Trump signed a stopgap spending bill that extended funding for three weeks. However, if negotiations among Republicans and Democrats don’t go well in the coming days, another shutdown could happen by the February 8th deadline.

The underlying issue behind the impasse in Washington was immigration- specifically the Deferred Action for Childhood Arrivals (DACA) policy that allows “Dreamers”, who came to the U.S. illegally as minors, to be protected from immediate deportation.

With the realization that the shutdown was causing political damage to both parties, a deal to reinstate funds was struck, based on a promise by Senate Majority Leader Mitch McConnell to Senate Minority Leader Chuck Schumer that he would bring DACA legislation to a vote on the house floor by the February 8th deadline.

Republicans and Democrats don’t have many working days to reach an agreement on immigration, as both parties recently headed out of Washington for three days. House Republicans left last Monday for their annual retreat in West Virginia, and the Democrats left for Maryland this past Sunday- just one day before the deadline to put together a spending bill that would keep the government running. It’s highly doubtful that a long-term spending agreement can be reached by this Thursday, so it’s expected that Congress will pass yet another short-term funding bill to keep the government running until a bipartisan agreement can be reached. But what could happen if Congress doesn’t pass another short-term appropriations bill by February 8th?

Here’s what land professionals need to know about how a government shutdown could affect their transactions:

A government shutdown could impede new land transactions and those already in escrow. The failure of our government to come to an agreement on a federal budget this week would impact buyers, sellers, and land agents all over the United States. During a partial “shut-down” period, all federal workers that are considered “non-essential” will be furloughed and not allowed to go to work. Government services that are “necessary to protect life”, such as military, police, firefighters, EMS, as well as those services deemed necessary for national security and public safety will continue to perform their duties. Non-vital services will not be available during this period of time, but government benefits like Social Security checks, veterans’ benefits, unemployment checks and food stamps will not be interrupted.

Land agents need to take a proactive approach to this current situation. The latest shutdown only lasted two days, but if we had seen it drag on for some time, both the land and housing market would have felt the impact. As agents, we need to prepare our customers and clients, as well as ourselves, for potential delays regarding current transactions if or when another a shutdown occurs.

It is mostly borrowers that might encounter road blocks when attempting to pre-qualify for the purchase of property or close on one in escrow. Self-employed borrowers and government employees are at greatest risk for encountering obstacles when trying to secure financing.

Conventional loans: Those in authority have indicated that borrowers can apply for loans at this time and that most will be underwritten, approved and funded. Since the housing crises, lenders have adopted stricter measures to fight fraud. Social security verifications and IRS 4506-transcripts are now part of these anti-fraud measures. All government employees applying for a loan will likely need to present verification of employment. Self-employed borrowers will need to complete an IRS Form 4506 T, which is a request for transcripts of tax return, to help lending institutions evaluate their credit worthiness. These services are unavailable until a shutdown period has ended.

Farm Loans: This type of loan is designed for farmers and ranchers, who cannot, for whatever reason, obtain a conventional loan from a bank or Farm Credit System institution. Farm loans are made by private lenders but guaranteed by the USDA Farm Service Agency or by Farmer MAC (Federal Agriculture Mortgage Corporation). The USDA is frozen during a shutdown and there are no guarantees until the shutdown is over.

During a lengthy government shutdown, owner financing becomes a very attractive option for land buyers. There are also plenty of cash buyers out there looking for their perfect piece of property.

I’ve just touched on a few of ways the land industry might feel the effects of the shutdown, but I’m sure there are other scenarios that I haven’t covered. Once thing is certain, we as land agents should make our buyers and sellers aware of the possible impacts on their land purchase or sale. None of us want to end up with a disgruntled seller who blames the buyer for delays out of their control, or an anxious buyer who isn’t able to close on his property in a timely manner. It is in our power to help clients plan accordingly, in the event another shutdown occurs like it did in 2013, that lasted for 16 days.