BUYER IS IN CONTROL OF FOREIGN’S SELLER’S FIRPTA WITHHOLDING UNDER THE REVISED 8/13 FLORIDA REALTORS/FLORIDA BAR (“FR/BAR”) CONTRACT FORMS.

 

Under the revised FR/BAR contract forms, Section 18 Standard V replaces the FIRPTA RIDER previously known as Rider I.  Apparently, agents were neglecting to incorporate Rider I into the Contract when the seller was a “foreign person” under the Foreign Investment in Real Property Tax Act (“FIRPTA”).   With the increase in transactions involving foreign sellers coupled with the aforesaid, the Attorney/Realtor Committee decided to incorporate the FIRPTA language directly into the standard contract forms.  In addition to adding the new FIRPTA Standard, the FIRPTA disclosure was expanded to require a seller to notify the buyer in writing if seller is a foreign person.   Although there is no time requirement for seller to notify the buyer, it is important that the seller notify the buyer and closing agent in the beginning of the transaction to avoid the parties having to scramble to comply with FIRPTA by closing.

If the seller is a foreign person under FIRPTA, the buyer is required to withhold 10% of the purchase price at closing and submit the 10% to the Internal Revenue Service (“IRS”) within 20 days of closing, unless an exemption applies.  For instance, if the sales price is $300,000 or less and the buyer (including buyer’s family members)  intends on occupying the property for at least 50% of the time the property is occupied during the first 2 twelve month periods, then the buyer does not need to withhold the 10%.  You don’t include the time period that the property is unoccupied.  For instance, if for the first 2 years, the buyer intends on occupying it for the month of December and renting it out for 2 weeks in November, the buyer would satisfy the occupancy requirement.    If the buyer is a corporation, estate, trust or some other type of entity, the $300,000 exemption cannot be used since the buyer has to be an individual under this exemption.  When the parties are relying on the $300,000 exemption, the buyer must sign a form at closing stating same.   As now reflected in the contract, the buyer should consult with an attorney and/or tax advisor concerning buyer’s risks when using this exemption.

Another exemption is if the foreign seller has applied for a withholding certificate from the IRS.  If the actual tax the seller will owe the IRS is substantially less than the 10%, the seller will probably want to apply for a withholding certificate.  The seller has to apply no later than the closing date.   The IRS will then issue a withholding certificate stating the amount that needs to be submitted to the IRS which could be 0 if the seller has incurred a loss on the sale.  It usually takes on the average 90 days for the IRS to issue the withholding certificate.  As a result, frequently the withholding certificate has not been issued by closing in which event the 10% is escrowed at closing pending receipt of the withholding certificate by the IRS.  Now under the revised contract, at buyer’s option, buyer can submit the 10% directly to the IRS right after closing if the withholding certificate has not been issued by the IRS, or escrow the 10% at seller’s expense with an escrow agent selected by buyer.  Therefore, when working with foreign sellers that plan on applying for a withholding certificate, the contract needs to be amended to remove buyer’s ability to be able to send the 10% into the IRS if the withholding certificate has not been issued by closing.   

As always, if you have any questions about transactions involving foreign sellers, we urge you to consult with your real estate attorney.

 
Sincerely,

Berlin-Patten, PLLC

  

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com 

SARASOTA

3700 S. Tamiami Tr, Suite 200, Sarasota, FL 34236   P (941) 954-9991  F (941) 954-9992

VENICE

247 S. Tamiami Trail, Suite 201, Venice, FL 34285  P (941) 955-9991  F (941) 484-9992

LAKEWOOD RANCH

8130 Main Street, Suite 206, Lakewood Ranch, FL 34202   P (941) 907-9022  F (941) 907-9024  

Movers and Breakers

Moving day can be an exciting time for many!  However, the thought of moving always causes angst, frustration, and physical/emotional exhaustion.  To avoid most of these emotional and physical moving issues, Sellers and Buyers should research said issues and then eventually hire vetted and reputable moving companies. Moving companies come in all sizes (i.e., National to local) and shapes (i.e., service and costs). …

Survey What, Survey Who?:

A buyer of real property normally is required to procure a survey due to a lender’s requirements. This is not so when a buyer is purchasing real property using cash or private financing. We often see the preceding buyers attempt to reduce their costs by forgoing the cost of a new survey and rely on…

I just noticed something…

Real estate sellers and buyers are often required to provide contractual notices to their counterparties relative to all kinds of different issues.  For instance: cancelling a contract requires timely notice, objecting to title issues requires notice, and financing issues require notice, to name just a few. How does one party provide notice to another?  The…

Foreign Buyers & Sellers-Speaking Their Language

In Florida we are fortunate to have many foreign buyers and sellers of real estate. Sometimes they show up on a realtor’s threshold and are ready to purchase a property to use as an investment, or a vacation home, or a reason to remove their money from their home country, or to house their children…

DON’T BE CAUGHT WITH YOUR PANTS DOWN

Have you ever represented a Buyer that literally waits to the last second to inform you, via email, that they want to terminate a contract?  As a Realtor, what are your obligations?  Generally speaking your obligation (as Selling Agent) is to deliver the written notice of termination (or signed Release and Termination) to the Listing…

Am I Bound or Can I Entertain Other Offers?

“Do I have a valid agreement or can I entertain other offers?” In this day and age, this a question that is becoming increasingly prevalent.  For example, you receive a call from a buyer’s agent and the agent indicates that their client has agreed to buy your listing at full price, with no contingencies, closing…

Examples of New FIRPTA Withholding Rates Applied

How Much Will Your Foreign Seller Need to Withhold – 0%, 10%, 15%? As noted in our January 16, 2016 blog, the FIRPTA withholding rates for real estate sales by foreign persons for closings on or after February 17, 2016 will change in certain instances.  For some foreign sellers, the current $300,000 exception could still…

FIRPTA Witholding Rate Set to Increase in February

When a foreigner is involved in a real estate transaction, it is important to be mindful of the Foreign Investment Real Property Tax Act (or “FIRPTA”). FIRPTA was passed in 1981, and requires foreign persons to pay U.S. income tax on gains made from selling real estate in the United States. Interestingly, the duty is…

Can Brokers Put a Lien on Real Property for Payment of Commission?

You are the listing agent, and the seller decides to dispute the amount of your commission or breaches the listing agreement and fails to pay your earned commission.  What are your remedies?  We often receive requests from brokers to place a lien for commissions on the real property being sold.  However, this is not an…

Inspection “CYA” in a Demanding Marketplace

Real estate professionals are often asked to perform many tasks for their clients. Such requests can include recommending inspectors, contractors, and even performing final walk through inspections.  In what is an extremely competitive market, it would be nonsensical to suggest that any prudent real estate professional  refuse to provide the best service they can. In…

Size Does Matter

With the rapid increase in new construction, have you ever asked yourself, how is the seller calculating square footages? This might seem like a simple question, but believe it or not, the answer is not always that simple. Do not make assumptions about how square footages are being determined, such as the normal assumption that…

Best Practices – Why is this Important?

Are you aware that most title underwriters, lenders, and insurers are now requiring real estate attorneys/title agents (“title agents”) to maintain a Best Practices Policy and Procedures Manual (“Manual”)?  In fact, some title underwriters may “drop” or not approve a new title agent if there is no Manual in place and lenders have been known…

Increase in Real Estate Transactions Involving Foreign Buyers & Sellers

  The local press recently published an article that spoke to the increase in real estate transactions involving foreigners.  It is true that instances in which a transaction involves a foreign buyer or seller have increased substantially. We expect that trend to continue. Transactions involving foreigners can be quite complex, and involve issues that are…

The New Foreclosure Legislation is Now Law and Affects More Than Just Foreclosures

On July 1, 2013, many revisions to the Florida foreclosure statutes went into effect. While many of the new provisions are technical in nature and primarily effect attorneys practicing foreclosure law, the overall effect is a dramatic change in the foreclosures process and the rights of struggling homeowners. Also, most of the changes are retroactive,…

The AS-IS Contract And Disclosure

When a transaction is an AS-IS sale, the seller often insists that the property is in “AS-IS” condition in an attempt to reduce repair limits/credits and possibly shift the responsibility for determining the true condition of the property to the buyer.  It is well known that the buyer is typically given a specified period of…

Should I Order A New Survey Or Rely On A Prior Survey?

Our clients often ask this question when they are purchasing residential property. You can only rely on the prior survey if the Seller has an existing survey accurately depicting the property and the Seller can sign an affidavit at closing that there have been no changes to the property since the date of the survey.…

Substituting Contract Pages

We have noticed an increase in a practice, that if not done with full and proper disclosure, could lead to substantial trouble for the parties involved, including civil liability, license forfeiture, or worse yet, criminal sanctions.  The practice involves changing and/or substituting pages to a fully executed contract.   While we recognize the reality that…

Preventing Post Closing Issues

Many clients, their agents, and unfortunately some closing/title agents believe that the end of a real estate transaction occurs when it closes and funds.  Too many times we have seen post-closing glitches, oversight, or lack of follow-up lead to problems with the future sale of a property.  Over the last few weeks we have run…

Navigating a Short Sale – Tips & Reminders

With the extension of deficiency waiver tax relief, we have seen no slowdown with respect to short sales, and do not anticipate a slowdown in the foreseeable future.  With that in mind, we wanted to remind anyone who routinely handles short sales to consider the following: Do not forget about how critical it is to…

How to Effectively Use an Attorney From a Realtor’s Perspective

We have found with our experience that most real estate professionals are not aware of how they can most effectively utilize an attorney throughout a real estate transaction to not only protect themselves, but to better serve their clients. Many real estate professionals (and/or even their clients) are under the assumption that they will receive…

Another Reason to Complete Your Residential Real Estate Transaction in 2012

Beginning January 1, 2013, a new 3.8% tax on some investment income will take effect.  The tax was passed by Congress to help fund the health care and Medicare overhaul. Recently, we have been receiving multiple inquiries regarding the new 3.8% capital gain tax and what impact it will have on residential real estate transactions. …

Short Sales and FIRPTA Witholding

Originally Published: 8/3/2012 Foreign Sellers who complete a short sale may be subject to the withholding requirements of the Foreign Investment in Real Property Tax Act, also known as FIRPTA. FIRPTA is particularly important to understand if you are a working on any transaction in which a “foreign person” is selling property in the United…

A Refresher on the Key Points of FIRPTA

Originally Published: 4/24/2012 Foreign Sellers may be subject to the withholding requirements of the Foreign Investment in Real Property Tax Act, also known as FIRPTA. FIRTPA is important for everyone to understand, but is particularly important if you are a working on any transaction in which a  “foreign person” is selling property in the United…

Bank of America Short Sale Seminar Summary

The Berlin Patten short sale negotiating team recently attended a Bank of America Short Sale Seminar.  The following is a brief summary of what Bank of America advised its seminar’s attendees:  Short sales are about two primary things to Bank of America:  Hardship and net proceeds Investors are reluctant to postpone foreclosures as the buyer…

Response to Anonymous Blog Entry: Title Agents should still not be conducting short sale negotiations

On or about September 30, 2011, an anonymous reader provided a response to a blog Berlin Patten had sent to its readers regarding who can or should be engaged in the negotiation of short sales. While we debated whether or not to further comment on the subject (as the blog response did not really specifically…

Short Sale “Pre-Approvals”

We are frequently asked about listings being marketed as “pre-approved” in the MLS. We suspect this designation is intended to imply or suggest that there can be a quick closing.  We feel that the use of the term “pre-approved” can be misleading and lead to unrealistic or false expectations. Other than a pre-approval under HAFA,…

Short Sale Negotiations

We have been asked by several real estate agents to investigate whether or not a title company or title agent can conduct short sale negotiations. One of Berlin Patten’s contacts at the Florida Department of Financial Services, Bureau of Investigation, Title Services, responded to our inquiry as follows: “The license for a title insurance agent does not…

Fraud Investigation – A Top Priority for Freddie Mac

In previous blogs, we have discussed our concerns about short sale fraud and the warning signals to watch for.  According to Freddie Mac’s Mortgage Fraud Officer, Short sale fraud has also become the top priority for Freddie Mac’s fraud investigation unit as well. Per the attached article, recent trends that Freddie has been alerting Real…

Assignable Contracts & Specific Buyers

Please be advised that short sale lenders are getting very strict about approving the specific buyer identified on the contract. As such, lenders are carefully scrutinizing assignment provisions in contracts. Short sale lenders who are reviewing contracts (that permit the contract to be assigned) are kicking back the contracts more and more frequently.) Lenders are…

Berlin Patten’s Short Sale and Bankruptcy Services

Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that…

The Importance of a Municipal Lien Search

Performing a municipal lien search is crucial when purchasing property in this day and age. In many cases there are unknown or undisclosed fees, costs or other issues that will impact a buyer post-closing. In addition a municipal lien search generally will assist a seller in complying with contractual terms to avoid a default. Examples…

Short Sales – Working with Second Lenders

Anyone who works with short sales knows that it can be very difficult to get short sales approved when there is a second (or even third lender). To successfully complete a short sale, ALL lenders (among others) must agree. The problem is that in many instances, they do not. In fact, we have seen situations…

A New Buyer Can Be Substituted for One Who Walked

We have learned of a very interesting development with respect to Bank of America. Bank of America has advised that it will permit a new buyer to step into the shoes of a buyer who has walked away from a transaction.  Furthermore, Bank of America has advised that the process will not have to begin…

Deficiencies and Deficiency Judgements

We spend a great deal of time counseling prospective short sale sellers regarding the advantages of attempting to pursue a short sale rather than allowing their property to go through the foreclosure process. Many people do not realize that the foreclosure process is a two step process. The first step is the sale of the…

Bank of America Realtor/Broker Listing Agent Certification – Questions and Answers

The new Bank of America Realtor/Broker Listing Agent Certification (the “Certification”) has fostered some significant concern among real estate agents. The most common questions and our comments/responses are as follows: 1. Question: Does paragraph 1 of the Certification mean that Bank of America will not pay a commission. Answer: No! Bank of America never paid…

Wells Fargo Short Sale Addendum

As expected, Wells Fargo has followed suit with Bank of America and has put out a new Short Sale Affidavit (attached hereto). Similar to the agreements recently published by Bank of America, Wells Fargo appears to be getting more aggressive in trying to curb flips and low offers and is now requiring realtors and closing…

Bank of America Document Warning

Please be advised that Bank of America is now requiring the parties to a short sale transaction to execute certain form documents before they will consider your short sale for approval. The buyer and seller will be required to execute a new addendum, and somewhat interestingly, the agents involved in the transaction will also need…

Nonlawyer Assisting the Short Sale Seller: Ministerial Acts or UPL?

As you know, short sale negotiations (and negotiators) are coming under great scrutiny by local and federal authorities. There are significant new disclosures for non-attorneys, and now the Florida Bar is weighing in on the subject. In essence, various proposals under consideration by the Florida Bar suggest that a great deal of the short sale…

FTC Issues New Rules for MARS

The Federal Trade Commission (FTC) has issued new rules that might impact real estate practitioners who represent clients involved in short sale transactions. The Mortgage Assistance Relief Services (“MARS”) regulations define anyone providing services which assist or attempt to assist the consumer in negotiating a short sale as a “MARS” provider. Depending on certain factors,…
Menu