FIRPTA Withholding Rate to Increase to 15%

ft laud dwntn

Effective Feb. 16, FIRPTA general withholding rate increases from 10% to 15%

Author: Jonathan H. (Jason) Warner

Recent federal tax legislation increases the FIRPTA general withholding rate from 10% to 15% effective for closings on or after February 16, 2016. Closing agents should adjust their procedures and forms to reflect this change. (If you want a reference, it is H. R. 2029, now known as Public Law 114-113. See Section 324 for text of changes).

The 10% rate will still apply for those transactions in which the property is to be used by the Transferee as a residence, provided the amount realized (generally the sales price) does not exceed $1,000,000, and the existing $300,000 “exemption” remains unaffected. So here are your new guidelines:

• If the amount realized (generally the sales price) is $300,000 or less, AND the property will be used by the Transferee as a residence (as provided for in the current regulations), no sums need be withheld or remitted.

• If the amount realized exceeds $300,000 but does not exceed $1,000,000, AND the property will be used by the Transferee as a residence (there are no regulations that specifically address these changes but many are assuming you can follow the current regulations for the $300,000 exemption), then the withholding rate is 10% on the full amount realized.

• If the amount realized exceeds $1,000,000, then the withholding rate is 15% on the entire amount, regardless of use by the Transferee.
The well-documented flaws and risks of the $300,000 exemption will likely continue although future regulations could change existing procedures. Members should document the Transferee’s intent to use the property as a residence as best they can and point out to the Transferee the risks of allowing the exemption to apply to their transaction. Under the law, the Transferee is the withholding agent and is responsible for withholding and remitting the proper amount to the IRS. Members should also be alert for situations where the foreign Transferor forces the Transferee to claim residence status merely to lower the withholding rate, since the Transferee could be liable for any additional withholding tax, penalty, and interest if their intent is ever challenged by the IRS.
The current FAR/BAR contract form contains language specifically referring to a 10% withholding. An amendment to the contract for closings scheduled on or after February 16, 2016 should be added to change the potential rate of withholding to 15%.
The remainder of the FIRPTA changes in the recent legislation involve REITS, but a new exemption from FIRPTA taxation and withholding is provided for qualified foreign pension funds. A new certification form likely will be needed to document the exemption.

It is recommended that you seek the advice of a tax specialist regarding the implementation of this new rate, but if you have any questions about how this change might applies to you or a transaction, please do not hesitate to contact Khani & Auerbach.

Reprinted with permission from Attorney’s Title Insurance Fund

New Mortgage Disclosures Expected to Delay Real Estate Closings

Our sincerest apologies for not having provided you with new content in such a long time, but we have been working tirelessly on becoming prepared for the changes ahead! In just a few short days, federal laws will be implemented that will affect the way homebuyers finance their mortgages in real estate transactions. The Consumer Financial Protection Bureau created “TILA RESPA Integrated Disclosure,” known in the industry as TRID, and TRID implementation begins on Saturday, October 3, 2015. Most, if not all, of the experts in our industry agree that these changes could increase the time to close on purchases by at least double. Take note, these changes do NOT affect all-cash or commercial transactions. Furthermore, the implementation of TRID will only affect loan applications that are taken on residential purchases that are financed ON or AFTER Saturday, October 3rd. So, if you are able to squeeze in a loan application before that date, you will avoid being subject to these changes. Our local colleague, Gary M. Singer, outlines all these changes and we have reposted his article originally published in the Sun Sentinel, below:

Sept. 25, 2015

By GARY M. SINGER Sun Sentinel – Tribune News Service

Big changes are planned for how homebuyers finance their mortgages, and that almost certainly means that closings will take longer. In some cases, closings that now speed through in 30 days probably will require at least 60 days.

The changes had been expected to begin in August, but the effective date was pushed back to Oct. 3.

After the housing crash, Congress felt that we needed a better system of mortgage disclosures and procedures so that Americans can better protect themselves and make the best choices when getting home loans.

The Consumer Financial Protection Bureau was created and charged with accomplishing this.

The bureau decided that the four existing disclosure forms required under federal law would be changed into two new, more comprehensive documents — a Loan Estimate and a Closing Disclosure.

These forms are known as the “TILA RESPA Integrated Disclosure,” or more commonly, TRID.

In addition, the closing process was unified so that all 50 states use the same forms and procedures.

Who Do These New Rules Apply To?
They apply to residential properties that include a mortgage as part of the transaction — both sales and refinances.

The rules are designed to protect the buyer/borrower, but they will affect all parties to the transaction.

Lenders are bearing the brunt of ensuring compliance with the new rules, making the lender responsible for getting all of the other parties on board. The rules do not apply to commercial transactions or all-cash deals.

What is Changing?
Buyers applying for loans will get a Loan Estimate (instead of the current Good Faith Estimate) within three days of applying for the loans.

The new form is designed to highlight key terms to enable borrowers to shop around for the best deals. It’s supposed to be user-friendly and almost certainly will be, considering how confusing the current form is.

The Closing Disclosure must be received by the borrower three business days before the closing. If the form is mailed, couriered or emailed, the lender must allow an extra three business days on top of that.

This means that the closing can’t occur for at least six business days after the lender sends out the completed Closing Disclosure.

This is a massive change from the way it is now, when some of the information is still being filled in on the closing day, sometimes even while the parties are sitting at the closing table.

The biggest issue I have with these new forms is that they significantly downplay the importance of getting owner’s title insurance policies, which is money well spent. I can’t think of any situation in which not getting this very important coverage would be a good idea. And I’ve seen many instances in which not having title insurance costs a buyer the home.

K&A note: There are many ways a person can lose their home as a result of not having an Owner’s Policy for Title Insurance. Should you wish to learn what they are, contact us and we’ll share that information with you. It’s certainly not a short list and being uninsured can definitely result in the loss of property.

What do Buyers and Sellers Need to Do?
Closing agents — used to finalizing the process at the last minute to accomplish everyones’ rush to close — now will need to get the final closing information to the mortgage lender at least 10 days before the closing date so that the lender can complete the Closing Disclosure in time to get it out six days before the scheduled closing.

Realistically, to accomplish this, buyers and sellers will need to add three to four weeks to their closing time lines.

To make matters even more confusing, all of the standard purchase contract forms have been recently changed to address the new rules.

That’s causing real estate professionals to learn the new forms.

K&A note: If you are a real estate professional, please reach out to us for guidance on the new forms. We are all in this together and are looking forward to making all future transactions go as smoothly as possible.

Be sure your real estate agents and others on your team are aware of the new information and have been trained on how to deal with it.

Fortunately, the industry seems ready for this change, and there is plenty of training available for those in the business.

About the Writer
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program.

The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.

This article, originally dated 9/25/15, was re-posted from the Sun-Sentinel, distributed by Tribune News Service.

Contracts to Buy Residential Real Estate Climbs to 9-Year High

Victoria Park canalAccording to the National Association of Realtors (NAR), pending home sales continued to make impressive gains last month, rising to the highest level since April 2006. In May, more Americans signed contracts to purchase homes, as these pending sales reached their highest levels in over nine years.

Large gains in pending home sales in the Northeast and West helped to offset small decreases in the Midwest and South.
Here’s a more detailed look at how the Pending Home Sales Index performed regionally in May:

• Northeast: rose 6.3 percent to 93.9 last month and is 10.6 percent above a year ago.
• Midwest: fell 0.6 percent to 111.4 but remains 7.8 percent above year ago levels.
• South: dropped 0.8 percent to 127.8 but are still 10.6 percent above last May.
• West: rose 2.2 percent to 104.5 in May and are 13 percent above a year ago.

NAR’s Pending Home Sales Index rose 0.9 percent in May to 112.6 in May. The index is at its highest level since April 2006 when it was 113.7. The index has increased 10.4 percent over the past 12 months, putting it just below the April 2006 level—which was more than a year before the housing bust triggered the Great Recession.

Lawrence Yun, NAR’s chief economist states, “The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring. It’s very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.” Although there are strong sales, Yun cautions that these are causing home prices to rise to an “unhealthy and unsustainable pace.”

Pending sales are an indicator of future purchases. Additionally, a one- to two-month lag usually exists between a contract and a completed sale.

Steady job growth, in conjunction with low but rising mortgage rates, has created greater urgency to buy homes. The gains reflect both a stronger economy but also the pressures to purchase a home before both prices and the cost of borrowing become potentially unaffordable. Despite Yun’s opinion, some other economists say that the job gains should be adequate to overcome the drag from higher rates.

Relatively low mortgage rates have assisted the real estate market, but the recent rate increases in recent weeks may possibly be causing more potential buyers to close transactions before higher rates inhibit their ability to purchase a home.
Average rates for a 30-year fixed-rate mortgage were 4.02 percent last week, up slightly from 4 percent in the prior week, according mortgage giant Freddie Mac. The average has risen from a 52-week low of 3.59 percent.

Chief economist at Pantehon Macroeconomics, Ian Shepherdson states, “We think the housing market can cope with slightly higher mortgage rates, taking home sales to new post-crash highs over the next few months.”

Median home prices climbed 7.9 percent over the past 12 months to $228,700, about $1,700 short of the July 2006 peak.

Call the attorneys at Khani & Auerbach (954) 921-1517 if you have any questions about this or any real estate matters.

CFPB Fails to Comply with Congressional Review Act Moving TRID date to Oct. 3rd

CourthouseIn a statement made June 17th, the Consumer Financial Protection Bureau (CFPB) announced a proposal to delay implementation of the TILA-RESPA Integrated Disclosures (TRID) rule until Oct. 1st. The CFPB’s original implementation date of Aug. 1st had been been pushed to Oct. 1st, as they claim an “administrative error” caused the delay of Know Before You Owe rule. On June 24, 2015, the Bureau announced in a new Press Release, the selection of Saturday, October 3, 2015, rather than October 1, 2015, as the proposed implementation date. 

Under the Congressional Review Act, the CFPB failed to timely notify Congress, which requires agencies to submit the rule to Congress and the Government Accountability Office 60 days before the effective date. The agency’s submission should include (1) a copy of the rule; (2) a concise general statement relating to the rule, including whether it is a major rule; and (3) the proposed effective date of the rule.

According to CFPB Director Richard Cordray, the bureau “made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

At Khani & Auerbach, we were already well on our way to being prepared to implement these new procedures into our real estate practice, however, the CFPB’s decision to delay the deadline for their implementation is great news for everyone. The consumers, the vendors and the industry in general are all not exactly “ready” and there are aspects of TRID that simply made no sense, further confusing the consumer. This push to Oct. 3rdst was definitely something we expected and comes as no surprise. The CFPB listened to the industry and its concern for consumers.

With that said, Khani & Auerbach highly recommends that you initiate your real estate transactions before the implementation date expected for October 1st.

Call the attorneys at Khani & Auerbach (954) 921-1517 if you have any questions about this or any real estate matters.