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FIRPTA Withholding

Sales Agents may have to pay $$ if their clients don’t know about the new FIRPTA* withholding rate.

What changed on 2/17/2016?

0% withholding: buyer uses house as residence * & price is $300K or less
10% withholding: buyer uses house as residence* & price is over $300K & under $1 million
15% withholding: if price is over $1 million, regardless of how buyer uses house or for any price if buyer doesn’t meet residence rules
Sales agents who represent buyer or seller subject to FIRPTA can, under certain circumstances, be found personally liable for all or part of that tax if proper amount not withheld at closing.

* Residence rules apply

The ALTA Settlement Statement

What It Is, Why Trident Uses It, and How It’s Valuable To You

WHAT

The American Land Title Association (ALTA) created the Settlement Statement for settlement companies to use for itemizing the fees and charges involved in any transaction that involves the TRID Closing Disclosure (the “CD”). It does not replace, nor is it an alternative to, the CD.

WHY

The Settlement Statement addresses some privacy issues in the CD:

Most lenders are not providing the Buyer’s CD to their sales agents.
Fees are not itemized on the CD, and it usually only shows the commission paid by one party to the transaction.
Neither the Buyer nor Seller CD is signed by both parties.
Settlement agents cannot share the CD with Sales Agents because of the non-public personal information they contain.

How IT’S VALUABLE TO YOU

Trident, after receipt of customer authorization, will give you a copy of the Settlement Statement BEFORE settlement.

The Settlement Statement provides an itemized accounting of all amounts paid at closing in a format that is easily explained to, and understood by, your clients.

Owner’s Title Insurance: Protects your buyer’s property rights!

Your buyer’s peace of mind is NEVER “optional.”

Your buyer wouldn’t forgo home or auto insurance. A new homebuyer needs an Owner’s Title policy for the same reason.

What is that reason? iStock_000003286074_Small

For many people, buying a home is the single largest investment they will ever make. Lenders go to great lengths to minimize the risk of loaning money. A key step they take is that they require a lender’s loan policy, which assures of the validity, priority and enforceability of the lien (mortgage) – serving as protection for the lender’s security interest in the property. However, a loan policy does not provide any protection to the buyer. That’s why your buyer needs an owner’s policy.

Only an owner’s policy can protect the buyers’ interest in the property from unknown encumbrances, legal conflicts and unforeseen claims. A one-time premium provides buyers with coverage that will cover the cost of defending lawsuits attacking their title, either removing the title problem or paying the insured’s loss. This protection lasts as long as they, or their heirs, own the home. It’s a small cost which provides them peace of mind that the investment they have made in their home is safe.

Over 85% of Trident buyers choose to purchase an owner’s policy once they learn about the coverage it provides. When a standard loan policy is being issued, the small additional expense of an owner’s policy is a bargain.

A buyer expects to enjoy certain benefits from ownership. For example, they expect to be able to occupy and use the property as they wish, to be free from debts or obligations not created or agreed to by them, and to be able to freely sell or pledge their property as security for a loan. The right to legal access to a parcel of land has long been a basic coverage that is often taken for granted by buyers. Another issue that many buyer’s don’t think about are sellers who put a lien on the property during the gap period between the date of closing and when their deed is recorded.

Also, while the standard owner’s policy provides good coverage, consumers may need and want additional coverage. The Enhanced owner’s policy gives coverage for future events affecting their title which they haven’t caused or created and have no real way to protect against. Sales agents should NEVER tell a buyer not to pay for additional coverage as you may be financially liable if the buyer suffers a post-closing loss that would have been covered by the enhanced coverage policy!

Read on to learn about recent actual claims where an owner’s policy was invaluable to the purchaser.

Scenario #1: Title Insurance Protects Rights to Landlocked Land

Facts: The facts creating the claim were almost as peculiar as to how the claim resolved. Long before there was a single-family residence at 12 Airport Rd, the site played host to an important battle during the Revolutionary War. Parker’s Revenge took place on April 19, 1775, and is still re-enacted annually by the Minute Men National Park Association on the abutting Minute Man National Park.

The parcel the house is on is located on a road leading to an US Air Force Base. In 1970, the State conveyed a portion of the road the house that was needed to get access to the house to the US Government. Until 2011 the owners of the parcel could use the road. Then the town decided to build a group home on the lot. As soon as construction equipment appeared, the Air Force erected barriers and posted an armed-guard on the parcel. The US took the position that they were revoking their permission to use the road.

The Minute Men had long been trying to purchase the property to become part of the Minute Man National Park, and the State decided to sell it to them, but could not do so the US was blocking access to the parcel.

Lesson Learned: The title insurance policy purchased by the town’s housing trust upon taking title to the parcel proved to be a wise investment. The insurer covered all the litigation expenses in both federal and state courts, as well as negotiated the sale of the property. Without the policy, the town would have been exposed to all court costs and legal fees, and may have ended up with a valueless landlocked parcel.

Scenario #2: The Unfaithful Forgerer

Facts: Karen and Kirk purchased a home together and took title as joint tenants. A few years later, Karen moved out after learning of Kirk’s infidelity. After Karen left, Kirk put the house up for sale. He showed up alone at closing and presented the settlement agent with a power of attorney signed by Karen and witnessed by a Notary Public. Using the power of attorney, Kirk proceeded to sign the closing documents, including the deed and a disbursement authorization that directed all the sales proceeds be wired to his personal savings account. The homebuyers elected to waive owner’s title insurance coverage.

Several years later, the homebuyers were served with a lawsuit brought by Karen and her attorney claiming her interest in the property. As it turned out, Karen’s signature on the power of attorney had been forged and the Notary Public was complicit in the fraud. The homebuyers have spent over $15,000 in attorney fees defending title to their property.

Lesson Learned: Had they elected to purchase owner’s title insurance coverage at the time of closing, the title insurance underwriter would be paying the attorney fees to defend title. In this case, the buyers were on the hook for over $15,000 in legal expenses to defend the action and also ended up paying Karen for her interest in the property.

Scenario #3: The Unpaid Roofer

Facts: Loretta loved her new home. She was especially thankful for the fact that the seller replaced the roof so she would not have to spend money for the unexpected surprise of a leaking roof. She had that problem with her prior home. Much to her surprise as it turned out the seller never paid the roofing contractor. Surprise turned to frustration when the roofing contractor insisted he had a mechanic lien which he could foreclose against Loretta’s new home. Loretta selected to purchase an owner’s title policy

Lesson Learned: Imagine the relief when Loretta learned she could tender the problem to her title insurer to take care of the whole problem. Her insurer contacted the roofing contractor and after a few months of negotiation the lien claim was settled, the lien removed and the contractor paid. If she had not had an owner’s policy, she would have been on the hook for the unpaid fees, and probably legal fees.

Scenario #4: The Walking Dead HELOC

Facts: During a refinance transaction Seller paid off a HELOC. A few years later, the home was sold to the current owners. Imagine their surprise when they received a notice that the HELOC’s lender was trying to foreclose on the house. Why? Because on the day of closing, immediately before settlement, the Seller ran up the HELOC to its maximum limit of $31,000.00. The title agent had acted responsibly because they received confirmation from Seller’s lender in writing that the HELOC was paid in full and the bringdown ordered the morning of closing also showed it paid.

Lesson Learned: Even when proper procedures are followed, nefarious actions can put a buyer’s title in jeopardy. With an owner’s policy, this claim is covered and the buyer does not have to worry about the HELOC bank starting a foreclosure action against the new owner. Without title insurance, the buyer would need to find a way to remove the lien from title, which would likely include costly legal fees and might require them paying the HELOC lender in full.

Next Article: CFPB Takes Aim at Kickbacks

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Sales Agents may have to pay $$ if their clients don’t know about the new FIRPTA* withholding rate.

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