SEAGLE NEWS

Legal Issues That Matter

Thursday
Jan142016

Non-resident aliens to pay more tax at real estate closing time

On February 16, 2015, closing agents will be required to hold back 15 percent of the gross sales price when a foreign national is the seller of the real estate. This is the Foreign Investment in Real Property Tax that has been in effect since 1981 that requires foreign persons to pay U.S. Income Tax on the gains they make when they sell U.S. real estate. Until February 16, the withholding is only 10 percent of the gross sales price.

The FIRPTA tax is actually a tax that the buyer is required to pay if the tax is not withheld from the seller's proceeds and remitted to the IRS within 20 days of closing. So it is the buyer's responsibility to ensure that 1) the seller is not a non-resident alien of the United States, and 2) if he is, then direct the closing agent to withhold and remit the proper amount of tax to the IRS.

There are exceptions to the withholding, but we have always advised buyers to not assume the risk of not paying the seller's FIRPTA tax based on the exceptions. Instead, it is advisable to always pay the tax and let the seller apply for a refund on their own.

The current FAR/Bar contract references a "10%" withholding, so -- any contracts that will close after February 16, 2015, should be amended to read "15%".

Tuesday
Sep152015

Land Trusts and Non-Homestead Residential Property

We have heard that Miami-Dade and Duval Counties' property appraisers have been treating any conveyance of non-homestead residential property into a land trust as a "conveyance." This is important because, under Florida Statute Section 193.1554(3), non-homestead residential property is subject to a valuation increase cap of ten percent each year.

This means that, even if non-homestead residential property increases in value by 25% in a year, it can't be assessed at a valuation greater than 10% higher than the prior year's valuation. It also means that, over a period of time, the tax valuation of the property and the actual fair market value of the property could eventually move very far away from each other.

When the property is "conveyed," however, the appraiser is permitted to assess the property at the current fair market value, and the caps are reset at this new value.

We have heard of some investors facing increases in tax value as much as $14,000.00, which increases their taxes accordingly.

The appraisers sent out TRIM notices last month, and most have a process whereby property owners can informally discuss the valuation with the property appraiser's office to see if there is a way to adjust the valuation. However, if that is not fruitful, the owner can appeal to the county's Adjustment Board. The deadline in most counties to file this appeal is September 18, so it is important to review TRIM notices quickly and file the appeals prior to the deadline. Once the deadline has passed, there is no opportunity to appeal the valuation until the following year.

Tuesday
Aug042015

TRID and how it will affect closings

They announced today that the full implementation of TRID (TILA-RESPA Integrated Disclosure) will be October 3, 2015. This has been moved back from August 1, 2015. This gives us a little more time to prepare for the implementation and to ponder the effects it may have on the closing process.

As everyone is aware, the TRID is a new disclosure form that will be required for any 1-4 family, residential real estate closing where a federally-related mortgage is being used to finance the purchase price. The new form combines and replaces the Good Faith Estimate, Truth-in-Lending, and HUD-1 settlement statement forms. It looks nothing like any of the currently existing forms, and -- in many cases -- does not reflect what is actually happening in the transaction as far as funds disbursements or pricing are concerned.

It is important to remember that the form is a disclosure form. It is not intended to be a disbursement disclosure as the HUD-1 has been used for several decades. It is also important to know that the form is required to be delivered to the borrower at least seven days prior to closing. When you add three days for mailing, that means that it must be sent out 10 days prior to closing.

The disclosed numbers have to be accurate -- at least much more accurate than the typical HUD-1, TIL, or GFE that was sent to the borrowers prior to closing in the past. To get that level of accuracy, closing agents are going to have to obtain HOA estoppels, title searches, municipal lien searches, and other closing information much earlier in the process than they have in the past so that they can provide accurate information to the borrower's lender for disclosure on the TRID.

Most lenders have made it clear that -- since they are liable for the timing and contents of the disclosure -- they will be the ones to send the TRID to the borrower; not the closing agent. Many lenders have also been informing the closing and title industry as to which electronic platforms they will be using to share closing information from and to the closing agent. Gone are the days of e-mails and faxes between loan processors and closing agents. Now, much like the Equator system that has been used by many lenders to track foreclosures and short sale workouts, the lenders will use similar systems to communicate closing information.

The penalties for failing to timely and accurately disclose information are pretty hefty, so lenders will likely err on the side of caution if a change in the numbers occurs such that the TRID disclosure must be changed. If the TRID changes, it must be re-delivered to the borrower which starts the 10-day countdown again...even if that countdown takes us past the Closing Date.

So, how does this affect the closing process? First, we would be surprised if any mortgage closing will be able to be completed within 30 days of the contract's Effective Date. Many REALTORs we've spoken with are already bracing for 45 to 60-day closing dates. Secondly, back-to-back closings will be a thing of the past. No longer will we be closing the sale of the seller's house in the morning, and their purchase of the new home in the afternoon, while moving trucks sit in the driveways waiting to be unloaded. With the timing requirements of the TRID disclosure, no one we have spoken with knows how such closigs could take place in light of the 10-day disclosure requirements. This also means that post-closing occupancy agreements could become the norm. These agreements will allow the seller to remain in the home for a few days after closing until they can finalize their financing to purchase their new home. Also, if the closing date is to become a moving target, based on TRID disclosures, it would be better for everyone to plan for the seller to remain in the home after closing anyway in many cases.

We're advising buyers to do a walk-through of the property at least 12 days prior to closing to see if there are any property changes that could affect the purchase price. If so, this would also affect the TRID. Might as well discover and deal with it before that final TRID goes out 10 days prior to closing. It's still advisable to do one more walk-through the day before or the day of closing just to make sure everything is still OK with the property, but the current FAR/Bar contract doesn't address an additional walk-through so far ahead of the closing date, so REALTORs should be aware of it, and suggest that the parties add it to the contract as an additional provision just in case.

We believe that there will be more need for attorneys to be involved in representing the buyer and seller in the closing process since contractual terms related to the closing date and arguments over the financing contingency will be more commonplace. We also are concerned that, eventually, the regulations will make it so difficult for an independent title agency or closing attorney to handle the closing, that the banks will be handed the reigns over the closing process. It only makes sense that this could eventually occur, because the banks are on the hook for most problems with the mortgage disclosure and financing. As such, it would make sense to eventually change the rules to state that -- when a federally insured mortgage is being used in the purchase -- the bank will choose the escrow and title agent for the closing. When that occurs, the buyer, seller, and REALTOR lose the choice and control of that part of the process, and they will need attorneys on their side to make sure contractual terms are clear and followed in the interests of the parties.

Finally, one last effect of TRID is that the 2010 HUD-1 settlement statement will die. While it will still be required for reverse mortgages, it will no longer be required in one-to-four family residential closings where a federally related mortgage is involved. From discussions with other closing agents, we have heard that many will adopt a very simple income and disbursement sheet for the buyers and sellers to sign at closing to agree to the disbursement of funds. The American Land Title Association (ALTA) is developing a new standard form that can be used to replace the old HUD-1. Until that is done and adopted, don't be surprised to see a wide array of various types of disbursement forms at closings.

We are confident that more changes will come to light as we delve into the world of TRID. We welcome you to share with us any insights or concerns that you have as we close in on the implementation deadline.

Tuesday
Mar102015

Preventing a client from losing $795,000.00

A few weeks ago, a REALTOR who often works with non-U.S. buyers sent me a contract and told me that his customer wanted me to represent him in the purchase of a new home in Orlando. I reviewed the contract and saw the typical things that set off my internal alarms:

1) High purchase price in an all-cash deal;

2) Seller was a bank that had taken the house back in foreclosure, and was using their "standard" REO contract;and

3) Out-of-state title company handling the title and closing.

I contacted the title company, and -- eventually -- they sent me the title insurance commitment. Among other deficiencies, the commitment that the title insurance policy would not cover any title issues that may arise because the bank's foreclosure wasn't handled properly. The commitment also failed to list any specific title exceptions such as a declaration of covenants, conditions, and restrictions, easements, or anything else for that matter.

I objected to the commitment on the buyer's behalf, and the title company sent me a revised commitment that listed a few specific title issues, but still refused coverage of any foreclosure-related title defects. It did list the prior owner's name, and I realized that the former owner was an infamous local former developer who had been sued in multiple lawsuits over the years.

I decided to conduct my own title search to make sure the foreclosure had been conducted correctly and that there were no judgments against the former owner that were still attached to the property. Unfortunately, the foreclosure was not conducted properly. I discovered at least 10 certified judgments of record against the infamous former owner, all of which had attached as liens against the property that my client was trying to purchase. I reviewed the selling bank's foreclosure action, and discovered that they had not named or served any of these judgment lien holders to extinguish their liens on the property. Further, the bank had failed to record a lis pendens in the foreclosure, so all new judgments that were entered while the foreclosure action was pending had also attached as additional liens against the property.

I advised my client who quickly directed me to cancel the contract (just a couple of days prior to closing) and demand a return of their earnest money deposit. Fortunately, the out-of-state title company agreed with my search and reasoning, and the seller-bank agreed to the termination and return of the $50,000.00 deposit.

Had my client done as most buyers do, and simply gone it alone, entrusting the seller's designated title agency to look out for their interests, they would have spent $795,000.00 on the property, and then additional money on renovations and upgrades to the property. When the judgment lien holders eventually came knocking to collect their judgment from the property through a new judgment lien foreclosure, my clients would have had no recourse other than to pay off the judgments if they wanted to keep the home, or walk away from their investment. The title insurance policy would not have covered the problems or paid any losses that my clients would have sustained, because the policy would have been written to explicitly exclude coverage of all the problems I had uncovered.

My client was disappointed that they weren't able to purchase the property, but they were ecstatic that they didn't waste $795,000.00. And that made me feel good.

Monday
Dec192011

SCAM ALERT: We don't take Western Union at Joseph E. Seagle, P.A.

One downside of having a good business reputation is that scam artists will try to use it to their advantage.

We have discovered that someone has downloaded one of our forms from our website and is using it to pose as an employee of Chicago Title. He (a "Mr. Hazard") is calling timeshare owners to tell them he has a buyer for their timeshare, and they just need to send him money for the outstanding maintenance fees or taxes via Western Union Moneygram or "Money in Minutes." He uses one of our firm's forms to solicit the funds, and may have forged fake identification to pose as Joseph E. Seagle. He then uses that fake identification to retrieve the funds via any Western Union outlet. He is in no way affiliated with our firm nor Chicago Title.

Police have been notified, and we plan to prosecute this scam artist to the full extent of the law. However, we have been informed that we are not the "victim" in this case, so there is little that law enforcement can do from our end.

If anyone contacts you, stating they are in any way affiliated with or using our law firm (or one of our title companies (PCS Title, PCS Holdings, or CloseMyTimeshare.com), please do not send them any money nor deposit or cash any check that appears to come from our firm until you first contact us at the phone numbers provided on our website to verify that they are in fact associated with our firm.

We never send nor receive funds via Western Union, EVER.

If you have sent money through this scam (usually perpetrated on Friday evenings so you can't call and confirm that we are to receive any funds), please contact Western Union and file a consumer complaint, then file a police report with your local police or sheriff's department. They will then investigate the case with the local law enforcement agency where the funds were retrieved to obtain the necessary evidence to catch this thief.

If you want more information about timeshare resale scams, please visit the Timeshare Resale Resource Center on the ARDA-ROC website for more information. For more information on Internet computer crimes in general, please visit www.ic3.gov where you may file a complaint as well.

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