Monthly Archives: February 2016

CFPB – TRID Facts and Frequently Asked Questions Effective 12.1.2015

 

For facts and frequently asked questions surrounding the TRID “Know Before you Owe” rule, you can download this comprehensive guide.  We make compliance a priority and are pleased to make available important industry information to you.

CFPB-TRID FAQ 12-1-15

Important Recent Changes to FIRPTA Regarding Federal Tax Withholding For Foreign Sellers

by Michael Selinfreund, President/General Counsel of Cherry Creek Title Services, Inc.globe

February 24, 2016

This article is intended for educational purposes only and not as legal nor tax advice.

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), 26 U.S.C. 1445, is applicable in situations involving the disposition of U.S. real property by foreign Sellers. The IRS defines this to include, among other things, the sale, exchange, liquidation, redemption, gift or any transfer of such real property. The withholding requirement has generally been 10%, with certain exceptions, of the amount realized upon disposition. And, the way the IRS defines the amount realized upon disposition makes it effectively equal to the sales price irrespective of any loan payoffs and limited sales proceeds.

As of February 16, 2016 (effective date established by the IRS – the Act language reads February 17, 2016), the percentage will be increased to 15% in certain circumstances pursuant to provisions contained within the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) signed into law on December 8, 2015 by President Obama. However, the prior rate of 10% will still apply if the Buyer is using the property as a residence as defined by the IRS (the purchaser intends to occupy the property at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of purchase), and the amount realized, generally the sales price, does not exceed $1,000,000.  Obtaining an affidavit from the Buyer stating their intent to use the property as their primary residence is advisable. When the amount realized exceeds $1,000,000, the 15% withholding requirement is applicable on the entire sales price. When the seller is a foreign corporation, the withholding is 35% of the gain it recognizes on the distribution to its shareholders.

When there is a duty to withhold, the amount must be withheld regardless of whether the actual tax due may exceed or be less than the amount withheld. Primary liability for compliance rests with the Buyer; however, agents of the Buyer and Seller including real estate agents and settlement agents may in certain circumstances be held liable by the IRS for the entire amount of the tax due in addition to the interest in penalties for failure to comply with any withholding requirement. So, it is imperative in every sale of real property that the Buyer, closing/title/escrow companies, and all agents involved ascertain whether the Seller is a foreign person.

The most common exemption to the requirement to withhold under FIRPTA is when the amount realized (the sales price) is $300,000 or less, and the property will be used by the Buyer as a residence as defined by the IRS (the purchaser intends to occupy the property at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of purchase).   Once again, it is advisable to get an affidavit from the Buyer stating they intend to use the property as their residence.   Another circumstance in which no withholding is required is when the Seller provides a certification stating, under penalties of perjury, that the Seller is not a foreign person and such certificate contains the transferor’s name, U.S. taxpayer identification number and home address (or office address in case of an entity).  There are other far less common exceptions enumerated by the IRS including when the seller realizes zero from the sale. Additionally, Withholding Certificates can be obtained by the foreign seller from the IRS adjusting the amount to be withheld.

The tax forms applicable that must be prepared and sent in to the IRS with the amount withheld when no exemption/exception applies are Forms 8288 and 8288-B.  Make sure you use the most current version of the appropriate forms as they have been recently modified to reflect the recent changes regarding the withholding percentage.  I recommend getting them each time each time the situation arises directly from the IRS.gov website to ensure the most recent form is being used.

FSBO Tips! “For Sale by Owner” Basics -With Informative Video Presentation

By Michael Selinfreund, Esq.,
President/General Counsel of Cherry Creek Title Services, Inc.,
Agent for Commonwealth/Fidelity and First American

Selling by owner has gotten much easier in the digital age.   I’ve been helping “For Sale by Owner” (FSBO) sellers since 1992.  In those early years, the most effective marketing techniques were yard signs and classified ads in the newspaper.   Despite their limited marketing channels and lack of Multiple Listing Service (MLS) access, many people were successful in selling themselves.  I routinely closed 10-15 FSBO’s every month.  Now, people are able to post their properties online and include pictures and video of the inside and outside of their home.

Cherry Creek Title specializes in For Sale by Owner transactions!

CLICK TO VIEW “QUICK TIPS” VIDEO PRESENTATION

Besides whatever improvements, changes, clean-up or anything else you do to your property in anticipation of sale, here are some tips:

  1. Home ValuePrice your house properly. The easiest way to do that is to call one or more Realtors and have them give you a free comparative market analysis.  You may also want to check out zillow.com and their “Price This Home” feature to view sales information on nearby properties.  Many readers of this article are already receiving postcards with for sale and sold information from agents working their area so they have a good idea of their property’s general value in addition to the Realtors that work their area.  Since you may end up listing with an agent if you’re unsuccessful selling by owner, I’d select one or two that offered discounted commission rates and one that specialized in my neighborhood.  I might get better pricing information from the higher rate agent that works my neighborhood, but I’d still pick the discount agent I liked best if I couldn’t sell myself.  And of course I’d never pay any non-refundable fees nor any of the MLS fees or marketing costs.  I’d make sure I was getting MLS exposure, brochures to display, and a sign with all costs paid by the listing agent.  4% including the 2.8% co-op is no problem to find and sometimes even less.  Some will refund you everything but the co-op if/when you buy another home through them.  You can still tell the Realtor you want to use Cherry Creek Title Services as your title company.  Make sure to REQUEST A QUOTE FROM Cherry Creek Title Services so you can compare rates with any other title company.
  2. Go to the Colorado Division of Real Estate Site where you can download the Seller’s Property Disclosure for free. Fill it out and make multiple copies.  You may want to display copies of it alongside whatever sales sheet/brochure you have for prospects that view your property.  You’ll need it for when you receive a contract, and many offers expect the completed disclosure to be provided virtually immediately.
  3. Familiarize yourself with the other forms at the Division of Real Estate website beginning with the 2016 Contract to Buy and Sell (Residential). I’ve written an article regarding Tips in Preparing the 2016 Contract to Buy and Sell (Residential), and it’s posted on the Cherry Creek Title website.   If you need to provide a Lead Based Paint Disclosure Form and associated brochure (discussed in more detail in my article), you’ll want to be prepared to provide both.
  4. Marketing Your House For SaleOur experience of asking seller after seller where they found their buyers consistently reveals that the venerable yard sign and Zillow.com are all you need marketing wise. People drive the areas they desire to live in noticing yard signs, and neighbors also alert their friends.  Zillow is ubiquitous and in my opinion, the only website you need to advertise your property.  I believe that taking the time to look at other seller’s ads to get ideas for how you want to word yours is worth the time.  And taking comprehensive pictures of the exterior and every single room and bathroom in your home and uploading them to your Zillow ad is a very wise strategy.   You’re allowed a large number of quality pictures in your ad so take advantage of that opportunity.  Plan on uploading 20-25 photos.  If the option exists or becomes available where you can upload a video with a virtual tour, I certainly would.  Either way, any potential buyers that contact you will have effectively already seen your home so they’re likely very good prospects.
  5. Have the information on any mortgages you have on the property such as recent statements readily available. Once you find a buyer, this information will be necessary for the title company to order payoff information.  The same advice goes for your water, sewer, and any HOA statements, if applicable.
  6. Locate your original deed and title policy. Neither are mandatory, but both are helpful for identifying how you hold title and your legal description so you can properly prepare the contract.
  7. Pick the title company in advance. The title company is who will likely hold the earnest money deposit, and there is a blank in the standard Colorado Division of Real Estate contract wherein you put who will be holding the earnest money.  Shop around, but of course, I recommend Cherry Creek Title Services, Inc.  All earnest monies are held in an escrow account at no cost.  Cherry Creek Title’s closing and title fees are extremely competitive with no additional fees added for those selling by owner nor any requirement for an attorney opinion letter regarding the contract.  Cherry Creek Title has been in business since 1997 and has an A+ rating with the BBB.

This article and video presentation are intended for educational purposes only and not as legal advice.  To view more educational videos like on real estate and other related subjects visit the Cherry Creek Title Services Channel on You Tube.

CLICK FOR MORE "FSBO" ARTICLES AND RESOURCES

CLICK FOR MORE “FSBO” ARTICLES AND RESOURCES

Best of luck!