Released: June 02, 2006

‘Gift fund’ charities for home buyers in peril

Source: By Jacqueline L. Salmon and Kirstin Downey, Washington Post (Free Registration)

A ruling by the Internal Revenue Service threatens to extinguish a fast-growing - but controversial - charitable industry that has funneled hundreds of millions of dollars in cash to first-time home buyers for their down payments.The unexpected IRS edict throws into question a practice that has helped boost national home ownership rates to a near-record 69 percent in the past six years.

Almost 200 charities, such as AmeriDream, based in Gaithersburg, and Nehemiah Corp. in California, have acted as cash conduits between home sellers and buyers.

Under the system, sellers provide cash to the charities, which then give it to home buyers for their down payments. The sellers, who pay the charities a service fee, often recoup their money by charging a higher price for the homes - usually 2 or 3 percent more, or an amount equal to the down payment, says a Government Accountability Office study. Federal authorities have raised concerns, because the mortgages are insured by the Federal Housing Administration. 

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