New California Homebuyers offered Layoff Protection

If you've been fence-sitting on your California home purchase plans, you may now have an incentive to get moving. An industry group is funding a $1-million layoff protection plan for new homebuyers. 

If real estate markets had tabloids, cities in California would be among the most targeted for feature stories. Aggressive mainstream headlines have already exposed the embarrassing details of home values and foreclosures in Stockton, Fresno, Riverside, and L.A. It's no wonder that the California Association of Realtors (CAR) is taking bold steps to remove the risk from California home purchases.

Layoff protection started out as an incentive to buy a new car, and now it's being used to attract new homebuyers. CAR is throwing its weight behind the Mortgage Protection Program-the broadest mortgage layoff protection offering in the country.

This program agrees to pay up to $1,500 per month to eligible, insured homeowners if they become involuntarily unemployed or accidentally disabled.  The monthly benefit is available for up to six months. CAR, which is paying the first year's insurance premium, has said the program could help as many as 3,000 families purchase a California home this year.

Fine print, and lots of it

New homebuyers who are interested in layoff protection must work with a California realtor to complete and submit an insurance application. The program's eligibility requirements state that the new homebuyer must:

• Open escrow on a primary residence purchase in California after April 2nd
• Close escrow before December 31st
• Be an employee earning W-2 income (as opposed to 1099 income)
• Be a first-time homebuyer (defined as not owning a home within the last three years)

Additional restrictions apply to the new homebuyer's employment situation. The buyer cannot, for example, be a controlling owner, or a dependent of a controlling owner, in the employing company. Also, an individual who has temporary or seasonal employment will not be eligible.

Timing is everything

The payment protection kicks in if the insured homeowner becomes involuntarily unemployed or accidentally disabled, assuming the homeowner has fulfilled the program's waiting periods before the event happens. There are two waiting periods: an initial vesting period of six months, and an "actively at work" requirement of four months. These can be fulfilled simultaneously. See www.car.org for a more detailed explanation of these timing demands.

Given the vesting period, insured homeowners can only benefit from the program during the latter six months of the first year's coverage. Prior to the expiration of that first year, however, the homeowner will have the opportunity to extend the coverage at her own expense. And that may not be a bad idea. Many economists believe unemployment will get worse before it gets better. If the California employers start showing up on tabloid covers for cheating residents out of jobs, mortgage layoff protection will be a nice asset to have.