Fall 2016
Vermont SPOTLIGHT CFPB
ADVANCED NOTICE OF PROPOSED RULEMAKING By: Carrie B. Cote, Underwriting Counsel The Consumer Financial Protection Bureau (CFPB) published an Advanced Notice of Proposed Rulemaking in the Federal Register on July 31, 2016 to address questions surrounding the Know Before You Owe Rule (TRID). The CFPB recently published proposed amendments to the TRID Rule in an effort to clarify outstanding questions raised by various industry participants including mortgage bankers, consumers and the American Land Title Association (ALTA). The proposed amendments to the Rule can be read in their entirety (all 293 pages!) by visiting: http://www.consumerfinance.gov/ policy-compliance/rulemaking/rules-under-development/amendments-federalmortgage-disclosure-requirements-under-truth-lending-act-regulation-z/. The CFPB hit on four areas it felt were the most in need of clarification, while also making it clear they were not inclined to change policy decisions that had been made several years ago when the original Know Before You Owe Rule was drafted. So what we are left with is three somewhat technical adjustments and the potential for some substantive guidance regarding information sharing. • First, the CFPB has proposed to implement Tolerances for the Total
Page
In This Issue
1-2
CFPB: Advanced Notice of Proposed Rulemaking
2
Agency Verification Letters
2
Know Before You Owe The Settlement Professional’s Guide
3
Improving Lender Title Policy Delivery - Addressing Missing Policy Requests
4-5
James’s Top 5 Underwriting Questions
6 7-9
First in Service
10
First American Title Pass-Thru Marketing Program
11
Short and Simple Easy-to-Use Online Resources
12
Did You Know?
12
Reminder - High Liability Authorization Approval
13 14
News Brief
Top 10 Questions About FIRPTA
Vermont Contact List
of Payments as disclosed on both the Loan Estimate (LE) and Closing Disclosure (CD) that would include the use of the Finance Charge currently not included in the calculation. This would require system updates for mortgage lenders, so they can adequately calculate and track discrepancies for this figure.
The information contained in this document was prepared by First American Title Insurance Company (“FATICO”) for informational purposes only and does not constitute legal advice. FATICO is not a law firm and this information is not intended to be legal advice. Readers should not act upon this without seeking advice from professional advisers. First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
AGENC Y VERIFIC ATION LE T TERS By: Lori Rice, VP, Area Manager ME/NH/VT We’ve recently been receiving inquiries from agents about the availability of “good standing” letters. Lenders may request a “good standing” letter or its equivalent accompany an insured closing letter. There are two documents you may want to provide to your lenders, if requested, to verify your agency with First American Title: 1. Agency Verification Letter (AVL)
The AVL confirms that as of the date and time the letter is produced, the agent is an authorized policy-issuing agent of First American Title. The AVL can be produced in AgentNet® by selecting Agency Verification Letters on the Services tab. 2. Authorized Agent Program Certificate
The Authorized Agent Program is designed to complement a lender’s responsibility in managing their thirdparty title and settlement provider relationships. The Certificate can be produced from AgentNet by selecting the Pass-Thru Marketing option on the Agent Resource Center tab. Search for “authorized agent program” to customize the form for your agency. PLEASE NOTE: The documents outlined above do not provide closing protection letter coverage.
CFPB ADVANCED NOTICE OF PROPOSED RULEMAKING Continued • Second, the TRID Rule originally gave a partial exemption from disclosure
requirements to certain housing assistance loans originated primarily by housing finance agencies. In the proposed rule, the CFPB elaborated on the exemption and partial exemption status of housing assistance loans as they relate to recording fees and transfer taxes. Specifically, the CFPB clarified that recording fees and transfer taxes may be charged in connection with housing assistance loan transactions without losing eligibility for the partial exemption. The Rule would also exclude recording fees and transfer taxes from the exemption’s limits on costs. The CFPB feels these changes will encourage more lenders to partner with housing finance agencies and bolster the accessibility of these consumer-friendly housing loans. • Third, the CFPB is seeking to include Cooperatives under the definition of real
property, thereby making finance transactions for the purchase or refinancing of Cooperatives subject to the TRID Rules. In some states, Cooperatives are viewed as personal property rather than real property, and have been exempt from the TRID Rule. This amendment would necessitate the use of the same TRID disclosures required for the financing of real property where the proceeds are related to personal, family or household use. • Lastly, and most applicable to the title industry, the CFPB proposes to include
guidance regarding how lenders can share the CD with the borrower’s and seller’s real estate representatives. Currently, federal privacy laws provide the road map for what and how a consumer’s Nonpublic Personal Information (NPI) can be shared. The CFPB recognized in their press release regarding this proposed amendment that sharing the CD, formerly the HUD-1, with the borrower’s and seller’s real estate representatives is usual and customary for most parts of the country .Thus, the CFPB has proposed a method by which the lender, at its sole discretion, can provide a copy of the CD to the parties’ real estate representatives. It should be noted that the proposal states the decision to provide the CD to the real estate representatives is the lender’s and if the lender decided to share the CD, it would need to be modified and and may not be the same version the borrower and seller receive at closing. As part of any Notice of Proposed Rulemaking, the CFPB is seeking input from a wide range of industry stakeholders. It has invited the public to submit written comments on the proposal by October 18, 2016, at which time the comments will be weighed before the final regulations are issued.
Know Before You Owe THE SETTLEMENT PROFESSIONAL’S GUIDE The Consumer Financial Protection Bureau (CFPB) has compiled several resources to help title and settlement agents navigate changes the TILA-RESPA Integrated Disclosures (TRID) Rule brought to the mortgage transaction and closing process. Use the link below to view and familiarize yourself with these resources: http://www.consumerfinance.gov/policy-compliance/know-you-owe-mortgages/settlement-professionals-guide/?utm_ source=GovDelivery&utm_medium=email&utm_term=08242016_a1&utm_campaign=RegImp
First American Title | Vermont Spotlight | Fall 2016
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IMPORTANT NOTICE
Improving Lender Title Policy Delivery Addressing Missing Policy Requests Lenders are increasing their focus on timely receipt of the lender’s title policy. In 2015, First American Title received over 19,000 requests from lenders for copies of loan policies issued by agents. 2016 is on pace to surpass that volume. As an indication of the lending industry’s response to new pressures, these request come from lenders of all sizes and types. How Is First American Title Helping? Our goal is for lenders to consider First American Title title agents as the best. In keeping with this goal, we formed a dedicated team to handle missing policy requests. This team responds to lender policy requests and works with title agents. If the title agent has already provided a copy of the policy to First American Title, we will provide a copy to the lender without contacting the agent. If we are not able to locate a copy of the policy in our records, an email will be sent making the agent aware of the lender request. What Can I Do As A Title Agent? 1) Recognize the increasing importance of timely policy delivery. 2) Review lender closing instructions for the exact location to send the policies. We frequently find that while the title agent has sent the policy, the lender, or the Compliance Division of the lender, can not locate it. 3) Upload policies using the Policy Upload feature in AgentNet®. This will allow First American Title to respond directly to a lender's request for a missing policy copy. Contact your Sales Representative or visit the User Guide tab in AgentNet for details. 4) Verify the accurate loan number appears on the face of the Loan Policy. 5) Check with your software vendor for available “event tracking” or operational reports for tracking aging policy delivery. 6) Know that any email you receive from our Policy Procurement Team has your best interests in mind. Together, we can address lender needs and continue our position as having the best title agents in the industry. First American Title will continue to support our title agents and their lenders to maintain a strong focus on excellence.
First American Title | Vermont Spotlight | Fall 2016
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JAMES’S TOP 5
UNDERWRITING QUESTIONS
By: James E. Knapp, Vermont Underwriting Counsel
1.
My clients are refinancing their property. It is enrolled in the Current Use Program. How do I handle the lien for the Land Use Change Tax? Forest land, farm land and farm buildings that meet the statutory requirements may be enrolled in the Current Use Program (32 V.S.A. Chap. 124). Enrollment in Current Use reduces the property tax burden on the property owner by reducing the value of the enrolled land to its “use value”, which is generally significantly less than the full fair market value of the property. In exchange for the benefit of reduced property taxes, the property owner agrees to pay a Land Use Change Tax when the property is developed. When land is enrolled in the Current Use Program, a copy of the approved application identifying the enrolled property is recorded in the land records. All enrolled property is encumbered by a lien to secure payment of the Land Use Change Tax which is assessed when the land is developed. The term “developed” has a specific meaning that is set out in 32 VSA §3752(5). A residence (primary or second home) and two (2) acres surrounding the residence cannot be enrolled in the Current Use Program. The excluded residence and the surrounding two acres are not encumbered by the lien for the Land Use Change Tax. The Vermont Department of Taxes has implemented a program to issue Subordination Agreements for financing transactions secured by mortgages encumbering the enrolled property. The Department has taken the position that the foreclosure of a mortgage claiming superior rights to the State’s lien to secure the Land Use Change Tax does NOT foreclose the State’s rights to enforce the collection of the Land Use Change Tax after the foreclosure. When the Department’s position was broadcast, the secondary market took note and began raising questions about the salability of loans secured by mortgages on enrolled land. A meeting including the Tax Department, the mortgage lending institutions and the title insurance
industry occurred to discuss the concerns related to the secondary market situation. Until there is a statutory change, a decision from the Supreme Court, or some other clarification of the legal status of the lien for the Land Use Change Tax, all Owner’s and Loan Policies insuring the title to land enrolled in the Current Use Program should include an exception on Schedule B I of the policy for the lien. Language similar to the following may be used: “Consequences, restrictions and requirements applicable to the property as a result of the enrollment in the Agricultural and Managed Forest Land Use program (32 V.S.A. Chap. 124) including the lien for the Land Use Change Tax, as modified by a Subordination Agreement and Certification {Fill in recording reference for the original notice of enrollment and the subordination}.” If (a) the Tax Department issues a subordination for the liens or liens (there may be more than one recording and all recorded notices of enrollment should be wrapped into the subordination), and (b) the subordination agreement includes a certification that “No Land Use Change Tax is due” as of the date of the subordination, then affirmative insurance may be included in the Loan Policy only – there is no affirmative insurance in the Owner’s policy under any circumstances. Contact the Vermont State Office to obtain the text for the affirmative insurance for loan policies. You should also keep in mind that the lien for the Land Use Change Tax is not the only obligation that applies to land enrolled in the program. Farm land and farm buildings must meet the criteria for enrollment annually. As of 2015, the owner of enrolled farm land and farm buildings must file an annual statement confirming the property is eligible for enrollment. Part of the process for enrolling forest land in the program is establishing a forest management plan for the enrolled property that is approved by the County Forester and then
First American Title | Vermont Spotlight | Fall 2016
managing the forest land as specified in the approved forest management plan. Forest management plans must be renewed every 10 years. Failure to comply with the requirements of the forest management plan may result in exclusion from the program and loss of future benefits. Also, when your clients transfer the enrolled land, including transfers to family members, transfers into family trusts, or family limited liability companies, and the granting of a remainder interest with retained life estate, they will have to file an application informing the State of the transfer. That application should be filed promptly after the transfer is complete. Failure to file the transfer application and failure to respond to the Department’s inquiries regarding additional information required in connection with the transfer may result in the property being withdrawn from the program and the resulting loss of benefits.
2.
We just finished searching a title and we found a lien filed by a contractor for work done several years ago. We also found a letter filed by a former tenant who rented the property. The former tenant is claiming a lien for a security deposit that wasn’t returned, but there doesn’t seem to be any court proceedings related to the claim. A notice of mechanic’s lien is a valid lien for 180 days from the date it is filed. The person claiming the lien must obtain a pre-judgment attachment or a final judgment in a civil law suit against the property owner and record the attachment or judgment within that 180 day period for the attachment or lien to relate back to the date of the filing of the mechanic’s lien. If the mechanic’s lien has been on record for more than 180 days and there is no follow-up attachment or judgment recorded to perfect the lien, then the lien is not valid. If an attachment or judgment is recorded after the 180 days, but before the financing or the transfer of the title, then the attachment
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JAMES’S TOP 5
UNDERWRITING QUESTIONS
Continued
or judgment must be resolved before closing or appear as an exception in the policy.
MERS ServicerID website: www.mers-servicerid.org Phone: 888.679.6377
People involved in disputes with land owners file all kinds of documents claiming liens for numerous things. When reviewing the results of the title search, it is important to determine if there is a legal basis for filing the document claiming a lien. The notice of mechanic’s lien when timely filed is a valid claim of lien. The example of the letter in the land records claiming a lien for a security deposit is not likely a valid notice of a lien and thus constitutes a potential slander of title. Slander of title is an old form of tort where the tortfeasor makes a spurious claim to title with malicious intent. Successfully proving a claim of slander of title may entitle the party to punitive damages. Wharton v. Tri-State Drilling & Boring, 824 A.2d 531, 175 Vt. 494, 2003 VT 19 (Vt. 2003).
However, if you cannot verify the beneficial holder of the mortgage is the discharging entity through the MERS system, you may still be able to rely on the provisions of 27 V.S.A. 470. Review the requirements of the statute carefully to see if the situation is covered, but in general terms, the mortgage discharge must have been of record for 3 years and no person has brought an action challenging the discharge, AND, the property owner must file an affidavit affirming certain facts including that no one has made a demand for payment.
Contact the Vermont State Office for help in determining when a “lien” is a valid claim of lien and how to address the issue in your title insurance commitments and policies.
3.
The title we just finished has some mortgages with questionable discharges. Are these discharges acceptable? a. Mortgage was granted to Bank 1 and
was discharged by Bank 2. There is no recorded assignment in the land records but the discharge includes a reference to the fact that Bank 1 was merged into Bank 2 before the discharge was signed. The discharge is valid. You may want to verify the claim that Bank 1 merged into Bank 2. b. The mortgage was granted to MERS
as nominee for Bank 1, but Bank 2 signed the discharge. Yes, it is likely that the mortgage discharge is valid. You can use the MERS system to confirm that the beneficial holder of the mortgage is the same institution that issued the discharge.
c. There was an old private mortgage
granted to spouses, but it doesn’t indicate that there was a tenancy by the entirety. The discharge is signed only by one spouse. That discharge is valid if one spouse predeceased the other. If both spouses were alive when the discharge was signed, then the discharge is defective and a corrective or supplemental discharge is required. d. There is a private mortgage granted to
A, and the discharge is signed by the administrator of A’s estate, but there is no license. The discharge is valid. The administrator can acknowledge satisfaction of the mortgage without procuring a license from the Probate Court or the Superior Court – Probate Division.
4.
We just finished reviewing a long property description that appears to have been drafted from a recorded survey. There is a problem though; there are two courses and distances missing from the written description, but they appear on the recorded survey. Do we have to get a corrective deed?
with the deed that includes the defective description. When preparing the new description for use – correct the error by including the missing courses and distances, noting the correction is made relying on the survey. Be careful, however, when the description changes and the missing courses and distances do not appear to be in error but instead suggest a subdivision or a boundary adjustment. Then you should determine if the missing courses and distances are an error or an intentional change in the boundaries. Because this is Vermont, if there is an intentional change in the boundaries, confirm that all required State and municipal development permits were obtained.
5.
I am working with an out-ofstate lender on a commercial transaction and the lender’s counsel wants me to “read the survey into the policy”. What does that mean? Lender’s counsel wants you to identify each matter shown on the survey or included in the notes to the policy that will be an exception to coverage. You may be accustomed to taking a generic exception for “all matters depicted on the survey or incorporated in the notes to the survey captioned … ”. Instead, this lender’s counsel wants a specific list of the exceptions, e.g.
a. Encroachment by fence and shed from
the lands of now or formerly of Smith onto the Land b. Utility easement to Big Utility
Company along the northerly boundary of the Land (See Item X. in Policy) The lender is looking to specifically identify any matters for which coverage would not be available to facilitate the lender’s further requests for affirmative coverage or additional endorsements to minimize the lender’s risks related to the title.
No, you do not need a corrective or supplemental deed if the survey was recorded before or contemporaneously
First American Title | Vermont Spotlight | Fall 2016
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SERVICE UNDERWRITING – EXPERIENCED AND LOCAL »» Our in-state title attorneys are committed to providing guidance and assistance in a timely and efficient manner, regardless of location or complexity of the transaction. »» Underwriting and legislative advisories are provided to keep you informed about industry standards, changes and other important news. »» Industry leading national underwriter possessing substantial economic strength and resources.
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»» Innovative technology that integrates with leading closing software systems to provide valuable business resources, solutions, products and services necessary to simplify and streamline your processes while keeping a competitive edge. »» Closing Protection Letters (CPLs), eJackets, rate and fee calculators, electronic invoices and statements with remittance and payment tools, and more are available online through our AgentNet® portal.
EDUCATION – KEEPING YOU INFORMED »» Current and comprehensive continuing education is available online 24/7 and locally in many states.
Put your trust in the professionals who put you first. Contact your local First American Title representative today.
First American Title | Vermont Spotlight | Fall 2016
»» Live webinars to keep you informed about industry changes, including TRID, ALTA Best Practices and much more.
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10FIRPTA TOP
QUE S TIONS ABOUT
1. WHAT IS FIRPTA?
United States tax law requires that all persons, whether foreign or domestic, pay income tax on the disposition of U.S. real property interests. Domestic persons or entities typically are subject to this tax as part of their regular income tax; however, the U.S. needed a By: Wade Wallace way to collect taxes from foreign Underwriting Counsel persons on the sale of U.S. real First American Title property interests. The Foreign Investor in Real Property Act (“FIRPTA”) was enacted to provide such a mechanism and requires that a buyer withhold and remit to the IRS a certain percentage of the sales price in anticipation of the taxes that will be due from the foreign seller on such transaction.1 FIRPTA applies in nearly all transactions, residential and commercial, in which a foreign By: Jennifer Bloodworth owner of a U.S. real property interest Sr. Underwriting Counsel First American Title sells such interest. The amount withheld is not the tax itself, but is payment on account of the taxes that ultimately will be due from the seller.
2. WHAT ARE THE WITHHOLDING REQUIREMENTS? Unless an exemption or reduced rate applies, FIRPTA requires that the buyer withhold fifteen percent (15%) of the sales price in all transactions in which the seller of a U.S. real property interest is a “Foreign Person.”
3. WHO IS A “FOREIGN PERSON”? FIRPTA defines a “Foreign Person” by defining who is not a Foreign Person, so it is important to understand the following definitions: a. A “Foreign Person” is defined as any person other than a “United States Person.” b. A “United States Person” is any of the following: (i) a First American Title | Vermont Spotlight | Fall 2016
U.S. Citizen; (ii) a resident alien who has a Green Card; (iii) a resident alien who meets the Substantial Presence Test; (iv) a domestic (U.S.) corporation, partnership or other legal entity (except a “Disregarded Entity” as defined by IRS Regulations), trustee or other fiduciary; (v) a Disregarded Entity, the owner of which qualifies as a “United States Person” under (i), (ii), (iii), or (iv), above; or (vi) a foreign entity which has elected to be treated as a domestic corporation (as evidenced by acknowledgement copy of election furnished by IRS).
c. The Substantial Presence Test: Under FIRPTA, a Foreign Person is considered a U.S. Person for the calendar year of sale if they are present in the United States for at least: i. 31 days during year of sale AND ii. 183 days during the 3 year period that includes year of sale and the 2 years preceding year of sale, but only counting: a. All days during year of sale; b. 1/3rd of the days during the first preceding year; and c. 1/6th of days during the second preceding year. When counting days, you may not include the days that a Foreign Person is present in the U.S. as a representative of a foreign government (e.g. foreign diplomat), as a teacher or student under a “J”, “Q”, “F” or “M” Visa, or as a professional athlete in a charitable sports event. d. A “Disregarded Entity” is any single-owner domestic business entity (such as a single-member limited liability company) other than a corporation, unless it has elected to be treated as a domestic association for tax purposes.
4. WHAT IF THE SELLER IS A DOMESTIC LLC? Single-Member LLC: A single-member domestic limited liability company, while a recognized legal entity, is considered a “Disregarded Entity” for tax purposes. Accordingly, if the Page 7
Top TEN Questions About FIRPTA (continued) seller is a single-member limited liability company, then you have to look to the identity of the sole member of the limited liability company. If the sole member is a “Foreign Person,” then the FIRPTA withholding rules apply in the same manner as if the foreign sole member was the seller. Multi-Member LLC: A domestic limited liability company with more than one owner is not considered a “Disregarded Entity” and is taxed differently than single-member limited liability companies. Accordingly, the FIRPTA rules regarding withholding do not apply to multi-member domestic limited liability companies.
5. WHAT ARE SOME EXCEPTIONS TO THE WITHHOLDING REQUIREMENTS? While there are several exceptions to FIRPTA withholding requirements that eliminate or reduce the required withholding, the most common exceptions are discussed below. a. Seller not a “Foreign Person.” One of the most common and clear exceptions under FIRPTA is when the seller is not a Foreign Person. In this case, the seller must provide the buyer with an affidavit that certifies the seller is not a Foreign Person and provides the seller’s name, U.S. social security number or taxpayer identification number (“TIN”), and address. b. Personal Residence Exemption. Under the Personal Residence Exemption, no withholding is due when (1) the buyer is acquiring property that will be used as the buyer’s residence, (2) the sales price is $300,000 or less, and (3) the buyer elects to waive withholding. See additional requirements set forth, below, under “Reduced Rate of Withholding.” c. Reduced Rate of Withholding: This new exception, which went into effect February 16, 2016, is similar to the Personal Residence Exemption, but provides for a reduced rate instead of a full exemption.2 Under this exception, a reduced withholding equal to ten percent (10%) of the sales price is due when (1) the buyer is acquiring property that will be used as the buyer’s residence, (2) the sales price is more than $300,000 but not more than $1,000,000, and (3) the buyer elects to waive withholding. In order to qualify for, either, the Personal Residence Exemption or the Reduced Rate of Withholding, the buyer or a member of the buyer’s family must have definite plans to reside at the property for at least 50% of the number of days the property is occupied by any person during each of the two 12-month periods following the date of closing. If the buyer fails to meet the occupancy requirements, the buyer may become liable to the IRS for the difference between the amount that was actually withheld, if any, and the amount that should have been withheld, plus interest and penalties. Under this exception, the buyer is not required to First American Title | Vermont Spotlight | Fall 2016
make this election, even if the facts may support the exemption or reduced rate and the settlement agent should advise the buyer that, neither, the exemption nor the reduced rate automatically applies. Instead, if the buyer opts to invoke the exemption or the reduced rate, the buyer must make an affirmative election to do so. This election should be in the form of an affidavit from the buyer setting forth the buyer’s decision and, if applicable, the facts that entitle the buyer to the exemption or reduced rate. d. Seller Obtains Withholding Certificate. In some cases, the seller has applied for and received a withholding certificate from the IRS that reduces or eliminates the withholding requirement. A buyer relying on this exception must obtain a copy of the Withholding Certificate and retain a copy in buyer’s records for five (5) years. e. Foreign Corporation or Single-Member LLC has “checked the box.” There is an exception for foreign corporations or single-member limited liability companies that are subject to FIRPTA withholding that have “checked the box” on the applicable IRS form to be taxed as a domestic corporation. Domestic corporations are not subject to the withholding rules under FIRPTA, so withholding will not be required in cases where entities otherwise subject to withholding have elected to be taxed as a domestic corporation. Importantly, to take advantage of this exemption from withholding, the entity must file Form 8832 with the IRS, obtain IRS approval, and provide evidence of this status to the buyer. The buyer will need to retain a copy of this approval in buyer’s records for 5 years.
6. ARE TINS REQUIRED FOR ALL PARTIES? IRS regulations require all buyers and foreign sellers of U.S. real property interests to provide their TINs, names, and addresses on withholding tax returns, applications for withholding certificates, notice of non-recognition, and other related IRS documents when disposing of a U.S. real property interest. While it is best practice to have the TINs for all parties at the time of closing, it is possible to close without the TINs under the following guidelines: 1. If the buyer does not have a TIN, the buyer must remit the proper withholding forms within 20 days after closing; however, the buyer will also need to remit, to a separate address in a separate package, a properly completed application (Form W-7) for a TIN simultaneously with remitting the withholding forms. Please refer to the instructions for each form for further instructions and mailing addresses. 2. If the seller does not have a TIN, the buyer must remit the proper withholding forms within 20 days after closing, but the seller’s TIN information will be left blank. Page 8
Top TEN Questions About FIRPTA (continued) While the TIN is not necessary for closing, it should be noted that the seller will have to obtain a TIN in order for the IRS to process the funds and, in fact, upon receipt of the withholding documentation, the IRS will follow up with the seller instructing the seller to apply for a TIN. For this reason, many settlement agents provide the friendly advice that the seller submit its separate application for a TIN by the time of closing. Additional information can be found in the IRS publication entitled “ITIN Guidance for Foreign Property Buyers/Sellers,” which is available at www.irs.gov.
7. WHAT IF THIS IS A SHORT SALE OR THERE ARE OTHERWISE INSUFFICIENT PROCEEDS FOR WITHHOLDING? There are times, such as short sales, when the proceeds from the sale are insufficient for withholding under FIRPTA. However, FIRPTA withholding requirements are based on the sales price, not the seller’s proceeds, so there is no automatic exemption for transactions in which the seller is receiving zero or insufficient proceeds. In these cases, the seller will need to apply for an exemption or reduced withholding from the IRS. As with applying for a TIN, this process can take some time, so it is imperative that the settlement agent raise these issues with the foreign seller as early as possible in the process.
8. WHAT IF LESS THAN ALL SELLERS ARE FOREIGN PERSONS? The analysis of whether the buyer must withhold funds under FIRPTA must be undertaken with respect to each seller separately, even if the seller is a married couple. Generally, withholding is required for each Foreign Person based on such person’s percentage of ownership. For example, if there are four joint owners, each owning a 25% interest, and one of the sellers is a Foreign Person, then the buyer is required to withhold only 25% of the required withholding. If the seller owns the real property interest as a married couple, the IRS deems each spouse to own 50%. In this case, if only one spouse is a Foreign Person, then withholding only as to such spouse’s one-half interest is required.
Person.” In the event the buyer does not properly withhold, the buyer may be liable to the IRS in an amount equal to the amount of taxes that should have been withheld, plus interest and penalties. While the buyer has the ultimate liability to the IRS, the collection and disbursement of funds to the IRS as part of the closing process creates a responsibility and potential liability for the settlement agent if the matter is not properly handled and documented. Accordingly, it is important that your file reflect specific written direction from the buyer if anything other than fifteen 15% is being withheld. For example, if a buyer elects to waive the withholding or withhold a reduced rate, settlement agents should obtain an affidavit from the buyer setting forth the buyer’s decision and, if applicable, the facts that entitle the buyer to the exemption or reduced rate along with an acknowledgment that the buyer has been given the opportunity to obtain independent tax or legal advice.
10. HOW IS THE WITHHOLDING SUBMITTED AND REPORTED? Generally, the funds withheld must be forwarded, together with IRS Forms 8288 and 8288-A, to the IRS within 20 days after the closing date. However, if an application for a withholding certificate is submitted to the IRS before the date of a sale and the application is still pending with the IRS on the closing date, the correct withholding tax must be withheld, but does not have to be reported and paid immediately. The amount withheld (or lesser amount as determined by the IRS) must be reported and paid within 20 days following the day on which a copy of the withholding certificate or notice of denial is mailed by the IRS.
MORE QUESTIONS? If you have any further questions about FIRPTA withholding, please feel free to contact your local First American underwriter; however, please understand that First American cannot provide legal advice to any party regarding FIRPTA. This article is intended as informational only and should any party need legal advice, the settlement agent should advise such party to engage legal counsel.
9. WHO IS RESPONSIBLE FOR COMPLYING WITH FIRPTA? While the seller is the party subjected to the tax, it is up to the buyer to withhold the appropriate percentage of the sales price when purchasing U.S. real property from a “Foreign
FIRPTA uses the phrase “amount realized,” which typically is the sales price; however, if you or any of the parties involved have any questions, the buyer should consult with legal counsel of buyer’s choosing to ensure that the proper figure is being used when calculating the withholding amount.
1
2 This amount recently was increased from 10%. According to the strict reading of the effective date for recent amendments to FIRPTA, the fifteen percent (15%) withholding applies to transactions in which the closing, or disposition of real property, occurs on or after February 17, 2016; however, it has come
First American Title | Vermont Spotlight | Fall 2016
to our attention that the IRS may be interpreting the language to mean that February 16, 2016, is the effective date. While this is ultimately up to the buyer to decide, we recommend using the date that the IRS will be using.
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FIRST AMERICAN TITLE
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• Holiday and note cards • And so much more!
Log into AgentNet® and access the Pass-Thru Marketing Program today! Program not available in CA
First American Title | Vermont Spotlight | Fall 2016
Page 10
Short and Simple
Easy-To-Use Online Resources TRID Resource Center
www.firstam.com/trid-agent Informational videos explaining the history of TRID and what it means to you, your customers and your business, along with ways to keep transactions smooth and timely, this website will be one more valuable tool to educate your entire network.
Ownership Information Center www.firstam.com/ownership
Designed to help homebuyers and sellers be better prepared for the closing process and to learn about the value of title insurance and the importance of having an Owner’s Policy. With informative sections covering buying a home, escrow and title insurance, the new Ownership Information Center combines brief articles, videos and infographics in a way that makes it interesting for new homebuyers to explore and become better informed.
First American Comprehensive Calculator (FACC) http://facc.firstam.com
Now includes a Loan Estimate/Closing Disclosure option so you can easily provide quotes for TRIDrelated purchase and refinance transactions.
Closing/Consummation Date Timing Calculator
https://closingdates.firstam.com Calculate the Closing Disclosure mailing date based on consummation date or determine the earliest consummation date based on mailing date. Calendar includes rescission dates and can be printed and emailed to clients.
First American Economic Center www.firstam.com/economics
Current economic trends, research and unique perspectives from First American Chief Economist, Mark Fleming.
First American Title | Vermont Spotlight | Fall 2016
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DID YOU KNOW When you update your AgentNet® password, you will also need to update your TARA password.
Are you completing a refinance CD and can’t figure out where the Appraised Property Value field is? It’s hiding in the File Info tab under Title Reference.
Select Manage > My Profile Manage AgentNet Login/Passwords Click the Firm Name Enter Password > Click Save
Please be sure to update your password in TARA immediately after changing your password in AgentNet.
Reminder HIGH LIABILITY AUTHORIZATION APPROVAL The agency contract between First American Title and its title agents contains a provision which indicates the limit on the amount of insurance for a policy the agent is authorized to issue. This liability limit will vary from agent to agent. Below is an example of such a provision: “Limited Title Agent covenants and agrees with the Company that Limited Title Agent is not authorized to and shall not: Issue Policies in excess of $1,000,000.00 (One Million) without the prior written approval of an authorized officer or underwriter of the Company.” As a result, a First American Title agent must obtain the approval of the Vermont State Office prior to issuing a policy which exceeds the applicable agency contract liability limit. Please become familiar with your agency contract liability limit and, before issuing a commitment or policy which exceeds your agency contract liability limit, contact the Vermont State Office for approval. We will provide the approval on a standard form entitled High Liability Authorization Approval.
First American Title | Vermont Spotlight | Fall 2016
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News Brief RESIDENTIAL SECTOR
COMMERCIAL SECTOR
Tiny Houses Are Trendy, Minimalist and Often Illegal
Pokémon Go’s AR Technology: Implications for Commercial Real Estate
Sarah Hastings’ 190-square-foot home was on 3 acres of farmland next to a small garden in Hadley, Massachusetts. Now it’s in storage. By: Rebecca Beitsch, PBS News Hour, July 6, 2016 Read more: http://www.pbs.org/newshour/rundown/tiny-houses-are-trendyminimalist-and-often-illegal/
Millions of Spenders Are Ready to Come Back From the Mortgage Crisis Millions of Americans lost their homes to foreclosures or short sales during the housing crisis. Fortunately for the economy, time heals most wounds -- and credit reports. By: Victoria Stilwell, Bloomberg, July 7, 2016 Read more: http://www.bloomberg.com/news/articles/2016-07-07/america-s-postforeclosure-consumers-are-ready-to-rejoin-economy
U.S. Treasury Expands Hunt for Money Laundering in Real Estate The U.S. Treasury on Wednesday expanded its hunt for international criminals who launder money through real-estate deals by ordering title insurance companies to report all-cash buyers’ identities in parts of California and Texas, as well as greater swaths of New York and Florida. By: Lucy Nicholson, Reuters, July 27, 2016 Read more: http://www.reuters.com/article/us-usa-corruption-realestateidUSKCN1072HU?il=0
The release of Pokémon Go, a location-based augmented reality game, this month brought with it an entirely new dimension for the commercial real estate business. By: Diana Bell, National Real Estate Investor, July 27, 2016 Read more: http://nreionline.com/real-estate-services/pokemon-go-s-ar-technologyimplications-commercial-real-estate
Q2 Commercial Mortgage Originations Up 17 Percent Commercial and multifamily mortgage loan originations saw a 17 percent increase from the first to second quarter of this year, according to new data from the Mortgage Bankers Association (MBA). By: Phil Hall, National Mortgage Professional Magazine, July 28, 2016 Read more: http://nationalmortgageprofessional.com/news/59683/commercial-mortgageoriginations-percent
Food Is Ruling Retail Real Estate, and Food Trucks Are Moving In For the first time nearly two decades, restaurant sales surpassed supermarket sales last year. By: Diana Olick, CNBC, July 22, 2016 Read more: http://www.cnbc.com/2016/07/22/food-is-ruling-retail-real-estate-and-foodtrucks-are-moving-in.html
Everything You Need To Know About Ransomware Cordray: Fixing Title Premium Disclosure Improbable Responding to a letter from 74 members of Congress, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray indicated the bureau will not address the portion of the TRID rule that requires consumers to receive incorrect fees for title insurance premiums on their mortgage disclosures. By: American Land Title Association, July 19, 2016 Read more: http://blog.alta.org/2016/07/cordray-fixing-title-premium-disclosureimprobable-.html
All the Reasons It’s So Much Harder to Buy a Home than It Was for Your Parents Lawrence Yun, chief economist of the National Association of Realtors in Washington, has a natural inclination to promote the health of the housing market, since NAR members depend on home sales to make a living. By: Michele Lerner, The Washington Post, July 28, 2016 Read more: https://www.washingtonpost.com/realestate/all-the-reasons-its-so-muchharder-to-buy-a-home-than-it-was-for-your-parents/2016/07/27/3d010358-42be-11e6bc99-7d269f8719b1_story.html
First American Title | Vermont Spotlight | Fall 2016
Ransomware is one of the most feared security threats today and it is fast becoming one of the most profitable areas of cybercrime for attackers. By: Travis Smith, BetaNews, July 19, 2016 Read more: http://betanews.com/2016/07/19/everything-need-know-ransomware/
Traversing the Private-Money Path As the influence of private-money lenders has grown in the past decade, so have the types of lenders that fit the private-money definition. By: Don Pelgrim, contributor Scotsman Guide, August 1, 2016 Read more: http://www.scotsmanguide.com/Commercial/Articles/2016/08/Traversing-thePrivate-Money-Path/
Bubble Trouble: 5 Ways Banks and Borrowers Can Avoid Real Estate Risk Without actually using the dreaded B-word, a U.S. federal regulator warned last week of rapid commercial real estate growth accompanied by looser underwriting standards. By: Ely Razin, Forbes contributor, July 21, 2016 Read more: http://www.forbes.com/sites/elyrazin/2016/07/21/what-banks-and-borrowerscan-do-to-minimize-the-risk-of-a-commercial-real-estate-bubble/#3db2b7b11f7f
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V E R M O N T contact list
Contact Numbers O: 802.764.3062 TF: 800.639.2502 F: 802.764.3080
Office Location First American Title 32 Seymour Street, Suite 103 Williston, VT 05495
Office Hours 8:30am-5:00pm Monday-Friday
Lori A. Rice Area Manager - ME, NH & VT D: 802.764.3064 C: 207.650.3194 lrice@firstam.com
James E. Knapp Vermont Underwriting Counsel D: 802.764.3065 C: 802.557.2132 jimknapp@firstam.com
Websites National: www.firstam.com/agency Vermont Specific: www.firstam.com/VT AgentNet : https://agency.myfirstam.com ÂŽ
First American Title | Vermont Spotlight | Fall 2016
Christopher McPhee Agency Manager D: 802.764.3081 C: 802.342.1820 cmcphee@firstam.com
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