Economy Watch – Homebuyer Tax Credit Sees Some Cheating

In testimony reminiscent of dogs getting credit-card applications approved back during the mid-2000s credit bubble, a Treasury Department inspector told Congress that kids as young as four years old have been able to receive $8,000 first-time homebuyer tax credits. “Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit,” J. Russell George told the House Ways and Means Committee’s oversight panel on Thursday.

In testimony reminiscent of dogs getting credit-card applications approved back during the mid-2000s credit bubble, a Treasury Department inspector told Congress that kids as young as four years old have been able to receive $8,000 first-time homebuyer tax credits. “Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit,” J. Russell George told the House Ways and Means Committee’s oversight panel on Thursday.

According to the Internal Revenue Service, there may be over 73,000 cases of individuals applying for the credit who might not actually be eligible. Using a little kid’s name on the application probably represents one kind of dodge to obtain the credit fraudulently, but not the only one.

Will the tax credit sunset at the end of November, as scheduled? Fraud or no fraud, that’s still an open question, but the administration may be leaning toward its extension. U.S. Housing and Urban Development Secretary Shaun Donovan told the Senate Banking Committee earlier this week that “the end of the tax credit would have some negative affect in the market.”

Stuyvesant Town Ruling Could Make NYC Landlords Suffer

A panel of judges has dealt a body blow to Tishman Speyer Properties and BlackRock by ruling that they improperly jacked up rents at the 110-building, 80-acre Stuyvesant Town and Peter Cooper Village complexes in Manhattan. After the owners’ purchase of the properties in 2006 for a bubble price of $5.4 billion, they determined that middle-class rents wouldn’t be enough to service their debt, and began raising rents precipitously.

Not so fast, cried many of those tenants, taking the matter to court. In a ruling on Thursday, the New York Court of Appeals, in a 4 to 2 vote, sided with the tenants. The owners, the court said, could not both raise rents in that way while receiving tax incentive benefits under the New York City’s J-51 program. Thus Tishman Speyer and BlackRock might have folk over $200 million or so in overcharges and damages to the complexes’ tenants.

The court also rejected the landlords’ argument that ruling against them would result in “dire circumstances,” not only for Tishman Speyer Properties and BlackRock, but for many NYC landlords. The judges replied: too bad. “If the statute imposes unacceptable burdens, defendants’ remedy is to seek legislative relief,” the ruling said.

“… you do not have to be gifted with powers of prophecy to foresee significant, if not severe, dislocations in the New York City residential real estate industry as a result of today’s decision,” the decision further stated. “This is inevitable because the Court has upended an understanding of the law upon which numerous and substantial business transactions and dealings have been predicated for over a decade.”

Upscale Communities Still Underway in Some Places

Are upscale lakefront and golf course-oriented development a thing of the bubble past? One might think so, but it turns out that some developers of those kinds of properties–generally associated with high net-worth buyers the likes of which are scarcer than they used to be–are plowing ahead, planning on better times ahead.

That was the rationale behind a recent groundbreaking in Texas, for example. Only last month, the new owners (SW Ownership L.L.C.) of a development called Skywater Over Horseshoe Bay in the Hill Country near Austin started work on a Jack Nicklaus Signature Golf Course that will be the centerpiece of the development, which will eventually feature about 1,200 single-family homes, villas and condominiums.

In addition to its on-site golf course and clubhouse, amenities at Skywater will include a private recreation center with a resort-style pool and fitness center, views of Lake LBJ and the Hill Country, and more than seven miles of hiking trails. Skywater lot owners will be offered full membership at no extra charge to the neighboring Horseshoe Bay Resort, which includes Robert Trent Jones Sr. golf courses, a fitness center, spa, yacht club and full-service marina, tennis facilities, a 349-room Marriott hotel, and a private airport.

“Obviously, timing is important, but we see Texas as having weathered the recent economic storm better than most,” Bill Cargill, a representative of SW Ownership L.L.C., told CPE. “With a dedicated ownership group that has the financial resources to see the vision through to completion, Skywater is poised to succeed as the economy continues to improve.”

Wall Street had a strong up day on Thursday, with the Dow Jones Industrial Average up 131.95 points, or 1.33 percent. The S&P 500 gained 1.06 percent and the Nasdaq went up 0.68 percent