How a Prolonged Government Shutdown Could Impact Real Estate Closings

Government shutdowns aren’t new, but if the current one drags on, the ripple effects could hit the real estate industry harder than the usual “ho-hum” pauses. Real estate thrives on tight timelines, and a slowdown in federal processes can quickly bottleneck transactions across mortgage, title, and insurance. Add in the threat of hurricane season — and the FEMA connection — and the stakes become even higher.

Why This Shutdown Could Be Different
If the shutdown stretches on, we could see not just temporary delays but also permanent layoffs in federal agencies. That means longer processing times for key functions tied directly to real estate closings. Contingency dates that look manageable today could suddenly become too tight tomorrow. If you’re representing buyers or sellers under contract, it’s critical to stay proactive and realistic — don’t overpromise or push for quick contingencies, especially when domino transactions depend on each other.
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Key Areas of Concern

1. Flood Insurance (NFIP through FEMA)
   This is the most immediate concern. New flood insurance policies cannot be bound during a shutdown since NFIP is federally managed. For properties in flood zones, this could stall closings entirely until the government reopens.
2. IRS Transcript Requests
   Many lenders require IRS tax transcripts to finalize loans. During a shutdown, those requests stop. Larger direct lenders may be able to continue without transcripts, but smaller lenders and mortgage brokers will likely face major delays — particularly with jumbo loans.
3. Social Security Number Verification
   Automated Social Security verification is suspended. Lenders must rely on manual processes, such as verifying with Social Security cards or alternate documentation. This slows everything down and increases the potential for errors.
4. FHA and VA Loans
   Case number assignments should continue, and most standard FHA and VA loan processes will function normally. However, manual processes, such as condo approvals, could face slowdowns. Fortunately, Fannie Mae-backed loans will largely remain unaffected.

​What Realtors and Clients Should Do

• Be cautious with contingency dates. Allow extra time for loan approvals, insurance binding, and verification processes.
• Stay on top of active contracts. Monitor timelines closely and communicate with all parties about possible delays.
• Don’t overpromise speed. Set realistic expectations for buyers and sellers.
• Prepare for chain reactions. If one sale depends on another, be extra vigilant about possible domino effects.

The Bottom Line
A government shutdown doesn’t always grind real estate to a halt — but if prolonged, this one could create more than the usual headaches. Flood insurance delays, IRS transcript freezes, and manual verifications all add friction. The best strategy? Stay proactive, educate your clients, and keep contingency timelines realistic. That way, even if federal processes stall, your deals stay on track.