Government Shutdown Could Disrupt Land Transactions

The gridlock in Washington might soon impede new land transactions and those already in escrow. The failure of our government to come to an agreement on a federal budget last Monday night could soon start to impact buyers, sellers, and land agents all over the United States. During this 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. It has only been a few days since the government shutdown began, but the longer it drags on, the greater the impact will be on both the land and housing market. As agents, we need to prepare our customers and clients, as well as ourselves, for potential delays regarding current transactions.

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 will be unavailable until the shutdown 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 this shutdown and there will be no guarantees until the shutdown is over.

Obviously, owner financing, will be more attractive and a great option to buyers during this time, especially if it continues for a long period of time. There are also plenty of cash buyers out there looking for their perfect piece of property. Here’s hoping that most of our transactions in the coming days will not be affected and the government shutdown will come to an end soon.

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 them plan accordingly until this shutdown has ended and we achieve a level of normalcy once again.