Note - StewartTexas and needs to have a documents notarized or acknowledged for use and recording in a Texas real estate transaction. Any acknowledgment taken outside Texas is a “Foreign”

Note:

PowerPoint and audio for the October 15, 2015 Webinar, “Spooky Claims 2015” is now available

on our website.

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ADDITIONAL HOUSEKEEPING

INFORMATION

Because of opinions expressed by the Texas Insurance Department

concerning rebates, legal credit is available only to:

Attorneys who own title agencies that are Stewart Title Guaranty Agents

Attorneys employed by a title insurance agent licensed with Stewart Title

Guaranty or Stewart entities

Fee attorneys who have an Escrow Officer license through a Stewart Title

Agent or Stewart entity

If you are claiming legal credit for this web conference, please provide in

your email which category you are in.

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We welcome any other lawyers to

listen, but cannot provide continuing

education credit to you.

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FOREIGNERS: WHO THEY

ARE, WHAT FORMS AND

DOCUMENTS DO WE

NEED, APOSTILLES,

TRANSLATIONS:

FOREIGN INVESTMENT IN

REAL ESTATE

Charlie Craig

Associate General Counsel

SW Regional Underwriter

Stewart Title Guaranty

Company

Austin, Texas

(512) 236-0405

[email protected]

Foreign Investment in Real Estate Property Tax Act (FIRPTA)

• Provides that “Foreign Persons” who transfer U.S. real property

interests will be taxed on any gain realized on the sale of the real

estate to the same extent as U.S. citizens.

• Originally tough to enforce, since it relied on the Foreign Person

seller to report gains made on sales…

• IRS set their sights on the Buyer.

Taxes on sales by Foreign Owners of U.S. Real Estate

FIRPTA, Tax Reform Act and the IRS

Tax Reform Act of 1984 added Section 1445 to the IRS Code to provide

that, unless an applicable exemption/exception is available, each Buyer

from a “Foreign Person” seller must withhold 10% of the gross sales

price and remit the same to the IRS within 20 days of the

transfer/sale.

The Buyer must find out if the Seller is a “Foreign Person”, and if so, the

Buyer must withhold 10% of the gross sales proceeds.

If Buyer fails to withhold, the Buyer can also be liable for the tax…


This bulletin has been updated

and replaces SLS2013002.

Effective February 16, 2016,

The FIRPTA withholding rate

changes from 10% to 15%.

Who is a “Foreign Person”?

Includes:

• Is not U.S. Citizen

• A Non-Resident Alien individual

• Foreign corporation that has not made an election to be treated as a

domestic (U.S.) corporation under IRS Code Section 897(i),

• Foreign partnership, foreign trust or foreign estate, or

• Disregarded Entities (sole member LLC) unless the LLC elected to be

treated as a domestic partnership or corporation.

.


“Foreign Person” does not include a Resident Alien individual.

A Resident Alien is an individual who is not a citizen or national of the

U.S.A. but who is a lawful permanent resident of the U.S.A. through an

immigrant visa (Green Card); or has established a “substantial

presence” in the U.S.A. by being physically present in the U.S.A. on at

least:

– 31 days during the calendar year, or

– 183 days during the current year and the 2 preceding years

Foreign Persons married to a U.S. citizen or resident alien may elect

to be a resident alien for income taxes, but are still considered a “Foreign

Person” subject to the IRS withholding rule!


FIRPTA Withholding Requirement

If FIRPTA applies, Buyer must withhold 10% of the gross sales price

and remit to the IRS within 20 days of closing

• 10% is a deposit applied to the actual tax liability the seller may

have for the year of the sale

• Buyer is the “statutory withholding agent” for the IRS

• Buyer is responsible for:

– Determining if Seller is a “Foreign Person”, AND

– Remitting the 10% deposit to the IRS using IRS forms 8288 and 8288-A

Note: TITLE AGENT may be a “Qualified Substitute” responsible

for handling or settling the transaction, so get a signed waiver!

This bulletin has been updated

and replaces SLS2013002.

Effective February 16, 2016,

The FIRPTA withholding rate

changes from 10% to 15%.

EXCEPTIONS to Withholding Requirement

1. Smaller Residential Sales with Buyer Intending to Reside

• If the sales price is $300,000 or less, the individual Buyer may elect to

execute an “Intent to Reside” statement and be exempt from FIRPTA

– Statement that the Buyer or his/her family member intends to occupy

the property for at least 50% of the time during each of the first two 12

month periods following closing

– “Intent to Reside” Statement is not mandatory, but non-compliance with

occupancy requirement exposes BUYER to withholding liability!

– If Buyer is buying to use property as rental property, withholding

applies; Seller’s prior use of the property is not relevant


2. Seller Non-Foreign Certifications

• Individual Seller furnishes the buyer with Green Card, Tax ID or an IRS Non-

Foreign Person Certification (Individual Transferor)

– includes name, US Taxpayer ID Number, U.S. address

• Foreign Corporation that has elected to be treated as a domestic corporation and

furnishes Buyer with an IRS Non-Foreign Person Certification (Entity Transferor).

• Disregarded Entities – (single member LLC or partnership) will be disregarded

and the sole owner/member/partner will be a “Foreign Person” transferor/seller!

Non-Foreign Certs from Disregarded Entities are not valid if single member is a

foreign person unless it elects to be treated as a domestic partnership or

corporation

• Actual knowledge or notice of false “Non-Foreign” Certs = Cert not valid

• If Title Agent knows Non-Foreign Certification is false, must notify Buyer


3. IRS Withholding Certificates

• Foreign Seller can apply for a Withholding Certificate (IRS Form 8288-B)

from the IRS prior to the closing date, that is issued by IRS and excuses

withholding requirement

• Title Agent should withhold 10% until the IRS provides its written

acceptance letter/certificate

– Can take more than 6 months after closing to hear from the IRS!

– If IRS rejects the application, withholding is due 20 days after rejection

notice letter.

• Moral: unless the Seller can verify that the application already has been

filed AND accepted by the IRS, Buyer must remit funds to the IRS post

closing as though Seller did not.

This bulletin has been updated and replaces SLS2013002. Effective

February 16, 2016, The FIRPTA withholding rate changes from 10% to 15%.


4. Notice by Seller of No Recognition of Gain or Loss Required

• Cites IRS Code or U.S. Tax Treaty, that Seller not required to

recognize the gain or loss from the transfer

• Buyer must file Seller’s Notice with IRS w/n 20 days of transfer

• Rarely seen; usually under a §1031 Exchange or gift transaction

• Talk to your underwriter before accepting this

5. Government Buyer: Property is acquired by U.S.A., D.C.,

State/Territory, or County.

Title Agent Withholding Considerations

1. Read the Contract - may require that you make sure the FIRPTA

obligations are carried out by parties at closing

2. If you know, disclose Seller’s foreign status to Buyer asap

3. If requested by contract or the Parties, ask for Seller’s Non- Foreign

Certification or Green Card

4. If Seller is unable or unwilling to provide NF Certificate/Green Card, notify

Buyer, request instructions on Buyer’s withholding responsibility

5. If Seller submits NF Certificate/Green Card, notify Buyer of any facts

that contradict the NF Certificate/Green Card

6. Perform your regular closing services, but DO NOT give tax advice to

Buyer or Seller AND DO NOT prepare any IRS Forms for Parties, nor

send any check to IRS!

7. Get a written Waiver of Agent Responsibility from the parties

Title Agent Withholding Considerations

8. If Parties do not provide any instructions or information to you:

1. Withhold from Seller’s proceeds the agreed amount (10% of gross sales

price) AND

2. Deliver to Buyer (at funding) a check payable to the IRS. Buyer must then

fill out appropriate forms and transmit to IRS by himself/herself.

9. Your File needs to show one of the following:

– Withholding from Seller and copy of Check written to IRS (Delivered to Buyer);

– If no withholding, Written Instructions from the Buyer and Seller regarding

withholding and related issues; or

– Copies of Appropriate Seller Notices/Certifications/ Certificates/Green Cards, if

any ; AND

– Written Signed Waiver of Agent’s Responsibility

See, Stewart Bulletin SLS2013002 and IRS Publication 515 – Withholding Tax

http://www.irs.gov/publications/p0=515/index.html

This bulletin has been updated and replaces

SLS2013002. Effective February 16, 2016, The

FIRPTA withholding rate changes from 10% to 15%.

Foreign Acknowledgments

Sometimes, a party to a transaction is located or resides outside of

Texas and needs to have a documents notarized or acknowledged for

use and recording in a Texas real estate transaction.

Any acknowledgment taken outside Texas is a “Foreign”

Acknowledgment.

The Foreign Acknowledgment can be Out of State, or Out of Country

What Foreign Acknowledgments are acceptable for recording?


Out of State Acknowledgments :

Tex. Civ. Prac. & Rem Code,§121.001 (b)

An acknowledgment or proof of a written instrument may be taken outside this

state, but inside the United States or its territories, by:

(1) a clerk of a court of record having a seal;

(2) a commissioner of deeds appointed under the laws of this state; or

(3) a notary public.

This type of acknowledgment is valid as long as it conforms to the laws of the

state or county where the acknowledgment is taken, and its acceptance is

authorized by the laws of the state where the land lies.

Form still needs to follow Texas Form Acknowledgments set out in CPRC

§§121.007 and 121.008 (Short Form)


Out of Country Acknowledgments by U.S. Government Officials:

Tex. Civ. Prac. & Rem Code,§121.001 (c)

… (c) An acknowledgment or proof of a written instrument may be taken outside the

United States or its territories by:

(1) a minister, commissioner, or charge d'affaires of the United States who is a

resident of and is accredited in the country where the acknowledgment or

proof is taken;

(2) a consul-general, consul, vice-consul, commercial agent, vice-commercial

agent, deputy consul, or consular agent of the United States who is a resident

of the country where the acknowledgment or proof is taken;

Note: You may assume that an acknowledgment signed by a U.S. government

official is appropriately appointed and accredited. Usually done at the U.S.

Embassy on an appointment basis, with a charge for the notarization. But it

takes a while…


Out of Country Acknowledgments by Foreign Notary with Apostille.

An APOSTILLE is a form of authentication issued to documents for use in countries that

participate in the Hague Convention of 1961Abolishing the Requirement for Legalization

of Foreign Public Documents.

• It is a certificate issued by a designated authority in a country where the Hague

Convention is in force.

• It authenticates the seals and signatures of officials on public documents such as

birth certificates, notaries, court orders, or any other document issued by a public

authority, so that they can be recognized in other countries that are parties to

the Convention.

• USA is a party to the Hague Convention.

• A list of participating countries and forms provided by the U.S. State Department

website, 28 United States Code, and in annotations to FRCP rule 44

An apostille will assure you that the notarization was carried out in accordance

with the law of the jurisdiction in which it was performed.

Note: Apostilles are VERY hard to get done on a timely basis!


Or…. Out of Country Acknowledgments by Non-U.S. Notaries:

Tex. Civ. Prac. & Rem Code,§121.001 (c)

… An acknowledgment or proof of a written instrument may be taken outside

the United States or its territories by:

(3) a notary public or any other official authorized to administer oaths in

the jurisdiction where the acknowledgment or proof is taken.

Note: No mention of any Apostille required….

A Notary/ Notario / Notaire is not the same as a Notary Public in the

USA; usually a specialized attorney, licensed by government to

formally authenticate documents and the signatory’s identification

Acknowledgment may be all or part in another language…


If it’s not all in English language:

Tex. Prop. Code, Sec. 11.002:

(a) An instrument related to real or personal property may not be recorded unless it is in

English or complies with this section. …

(c) An instrument acknowledged outside the United States or its territories in accordance

with Section 121.001(c)(3), Civil Practice and Remedies Code, that contains a certificate,

stamp, or seal of a notary public or other official before whom the acknowledgment was

taken or an apostille relating to the acknowledgment, any portion of which is not in

English, may be recorded and operate as constructive notice from the date of filing if:

(1) a correct English translation of any non-English portion of the certificate, stamp, seal, or

apostille is recorded with the original instrument;

(2) the accuracy of the translation is sworn to before an officer authorized to administer oaths;

and

(3) any apostille relating to the acknowledgment complies with the Hague Convention Treaty

Sworn Translations are expensive and time-consuming.


Order of Preference on Out of Country Acknowledgments:

1. Acknowledgment by a Consulate Official of the United States

2. Acknowledgment by Apostille executed by designated authority from a Hague

Convention country

3. A Foreign Notary Acknowledgment

a) Ask Notary to send/confirm her/his ID, copy of commission and firm information

in English, follow up on web search for notary and her/his firm

b) Notary should preferably be from Hague convention country; although most

foreign notaries are usually from established law firms easily identifiable and

verifiable.

c) If it is not completely in English, get a certified official translation to record.

In all cases, try to get an all-English language acknowledgment that follows Texas

Form Acknowledgments set out in CPRC § §121.007 and 121.008 (Short Form)


Military Acknowledgments

Tex. Civ. Prac. & Rem Code, §121.001 (d)

(d) A commissioned officer of the United States Armed Forces or of a United States

Armed Forces Auxiliary may take an acknowledgment or proof of a written instrument of

a member of the armed forces, a member of an armed forces auxiliary, or a

member's spouse.

• Can presume that the commissioned officer who signed was a commissioned officer

on the date that the officer signed, and that the acknowledging person was a member

of the authorized group of military personnel or spouses.

• The failure of the commissioned officer to attach an official seal to the certificate of

acknowledgment or proof of an instrument does not invalidate the acknowledgment

or proof.

• Usually done through the Military Base’s JAG Office.

Foreign Wills

A Foreign Will is one probated outside of Texas in any of the United States,

its territories, the District of Columbia, or in any foreign nation. A foreign

executor may want to convey Texas real property, with her power of sale as

granted by the foreign will.

Can rely upon foreign will/foreign executor, as empowering to convey title to

property in Texas owned by the decedent, if the foreign will and the order

admitting the will to probate are :

1) probated in Texas pursuant to Tex. Estates Code Ann. §§ 501.001–

501.008, which provides a simplified procedure for the Ancillary probate in

Texas of the foreign will; (rarely used) OR,

2) an exemplified copy of the foreign will and the order admitting the will

to probate are filed in the records of the county where the land is located,

pursuant to Tex. Estates Code Ann. § 503.001.

Foreign Wills

Hint: Try to get the complete copy of the foreign probate proceeding, from

application for probate to closing order, as it may contain important information, such as

the date of the decedent’s death and the names and addresses of surviving heirs.

Caution: An exemplified copy is not just a certified copy. To be exemplified, the foreign

will and the order admitting it to probate must be authenticated in the manner prescribed

in Tex. Estates Code Ann.§§501.002, and 503.002:

Exemplified copy means :

(1) Attested by the foreign probate clerk,

(2) Foreign probate judge certifies the attestation was in the proper form, and

(3) Foreign probate court seal is affixed (if the probate court uses one).

(called a “three-way certificate.”)

Note: English language requirement applies here too…Prop. Code, § 11.002(a)

Sales with Foreign Decedent on Title

If a Foreign Person dies and held title to U.S. property at the time of his/her death*,

an federal tax lien will attach until:

• IRS issues a “Transfer Certificate”, allowing for the sale/transfer; AND

• A federal estate tax return has been filed**; AND

• IRS issues a “Closing Letter” for the estate

* includes title held by husband and wife if the decedent spouse was a “Foreign

Person”

** foreign decedent gets only $60,000.00 estate tax exemption

Once IRS issues Transfer Certificate, can close the transaction, BUT:

funds cannot be disbursed to any beneficiaries of the decedent’s estate until IRS

has “closed” the estate by Closing Letter – can take over a year…

Buyer, Realtor AND Closing Agent can be held liable for any tax shortfall.

Foreign Guardians

Appointment of Nonresident Guardian of a Nonresident Ward’s Estate:

See, Estates Code Sec. 1252.051 (a) and (b).

A Nonresident Guardian may be appointed as guardian of a nonresident ward's estate in

Texas by application to the Texas court, same as a resident guardian, if:

(1) the Nonresident Guardian is now serving in that capacity by court appointment

from the jurisdiction where the non-resident resides;

(2) the Nonresident Guardian files with her Texas application a full exemplified

copy of the transcript of the proceedings from the other jurisdiction; AND

(3) Texas court orders Appointment

There is no necessity for notice or citation, before the Order of Appointment is entered.

After appointment in Texas, the Nonresident Guardian must file an inventory and

appraisal of the property of the Ward’s Estate that is located in Texas. Then she can act

as the Guardian of a nonresident ward's estate in Texas.

USA PATRIOT Act

Passed in 2001 in response to the 9/11 attacks

Last renewed and extended on June, 2015

Allows stronger domestic surveillance powers, strengthening criminal laws

against terrorism, improving intelligence, and combating money

laundering world wide.

Calls for U.S. Treasury regulations on U.S. financial institutions, for

identification verification, record keeping, checking prescribed “bad guy”

lists, reporting suspicious persons/activities

USA PATRIOT Act and Executive Orders

Executive Order 13224, dated Sept. 23, 2001, blocks transactions with

persons who commit, threaten to commit or support terrorism. Assets of such

persons/entities must be frozen.

The list of those persons is the Specially Designated Nationals and Blocked

Persons List (the SDN List) maintained by the Office of Foreign Assets Control

(OFAC) of the U.S. Treasury Department.

• Also, OFAC now also publishes a list of foreign persons and entities

designated as "Foreign Sanctions Evaders" or "FSEs." The FSE List

resulted from Executive Order 13608, dated May 1, 2012.

United States persons and entities are prohibited from engaging in a transaction

with a person or entity on the SDN list or FSE List unless specifically exempted

or otherwise authorized by OFAC

USA PATRIOT Act

Both the SDN List and the FSE List are available on the OFAC website AND

on Stewart’s Virtual Underwriter “Special Alerts” search tool.

Search the OFAC SDN List at http://sdnsearch.ofac.treas.gov/

OR

on Stewart Title’s firewalled Virtual Underwriter webpage:

https://specialalerts.stewart.com

USA PATRIOT Act

What happens if you get a “hit”

• Compare it with the exact name of the party to the transaction and

their address, identification numbers, date of birth.

• You do not have a "match" if all identifying information are not the

same.

(Ex.) the address of the party on the government issued identification

(such as a driver license or passport) or other documentary evidence of

address (such as mail, bills, etc.) shows a U.S. address and the

SDN/FSE List shows another street address, city or country.

USA PATRIOT Act

If you have an exact match

• If you think you have an exact match after review of the SDN/FSE

Lists or other circumstances reasonably arouse your suspicion (Red

Flags), call OFAC at 1-800-540-6322 or 202-622-2490 for further

instructions before either closing or refusing to close.

• Comply with all instructions from OFAC, and local authorities. If

necessary and after discussion with appropriate authorities, you

should file any applicable forms requested for reporting “blocked

transactions”.

USA PATRIOT Act

Run your search in advance of closing; do not wait until the closing date to run your search! OFAC instructions can take some time to fulfill…

Do not close a transaction before calling OFAC first; do not hold up the deal, but you must check SDN and FSE list, report exact matches to OFAC prior to providing services or closing the deal and follow OFAC’s instructions

Never tell the parties to the transaction that you think you have a match with a name on the SDN/FSE List, or that information relating to them is being reported to OFAC or that their transaction is suspect.

Refer to Stewart Bulletins SLS00158, SLS2014014 (rev. 2-15-15), and SLS2015010 (rev. 7-15-15)

Charlie Craig

Associate General Counsel

SW Regional Underwriter

Stewart Title Guaranty Company

Austin, Texas

(512) 236-0405 [email protected]

Be Careful Out There

To Receive CE Credit Each individual seeking credit hours must send their own certificate request to:

[email protected]

Please include the following information: • Name of Participant • This Presentation Name – “Foreigners” • Presentation PASSWORD given at the end of the webinar • License Number Only (located on left side of Escrow Officer Certificate of License

– for example: License Number: 1234567-890123)

For Attorney CLE Credit also include: • Texas State Bar Number • Affiliation with Stewart

– Employed by Stewart Title Guaranty Company; – an affiliate; or – a Stewart agent

If you haven’t received your certificate within

2 weeks please contact:

[email protected]

You can access the full webinar materials 10 business days

after the webinar at: www.stewart.com/texas

under the “Texas TIPS” tab

mailto:[email protected]

http://www.stewart.com/texas

Next Month’s Texas TIPS Online presentation is

December 17, 2015

“Basic Manual: An Update” presented by:

John Rothermel and Heidi Junge

For Questions/Comments Email

[email protected]

or

[email protected]

