Have The Best Closing Experience – Read The Title Commitment When You Receive It!

When a title commitment is received by the parties, it should be reviewed for content and accuracy. A title commitment has three schedules: Schedule A, Schedule BI – Requirements, and Schedule BII – Exceptions.

Here is what you will find in each Schedule and what you should look for:

Schedule A

The first part of the title commitment provides the names of the proposed insured. This should be the buyers in the transaction. If these names do not match the names as your buyer has told you they would like to take title, you should contact your escrow officer to have this information corrected. The escrow officer may not have the latest Amendment to the contract. The escrow officer and the loan officer (if there is a loan) will rely on this information to prepare the necessary documents to close the transaction, if it is wrong then all documents may need to be redone which could potentially cause a delay in the closing.

The Policy Amount should match the purchase price, if wrong maybe the escrow officer does not have the latest Amendment. Again, contact your escrow officer to have the correction made.

The name of the seller should be listed as the party that has “Title to the fee estate or interest in the land as of the Effective Date”. If the name is different, there may be a title issue such as a deceased individual or a spouse that still owns the property, a trust or LLC that has an interest in the property, or some other issue that may require immediate attention. The name listed should be the same party that entered into the contract. If the name is not as the seller had indicated to you, check the requirement page (Schedule BI) and see what requirements have been made. There may be a requirement, for instance the spouse may need to quit claim their interest.

The land referred to in the title commitment should match the land being sold. This will be the legal description of the property not the property address, as title companies insure legal descriptions not property addresses. Review the legal description to see if it looks right, especially when dealing with a Condominium or multiple lots or parcels.

Schedule BI Requirements

This part of the title commitment provides a list of the requirements that must be satisfied in order to close on the transaction. If the seller is a corporation there may by be a requirement that states: Furnish currently certified copy of a Resolution of the Board of Directors of the Corporation authorizing the execution and delivery by the proper officers of all instruments required to consummate this transaction. The requirements will call out any unusual issues that must be dealt with at closing. For instance, if the seller is deceased a call for the Personal Representative to be appointed may be made or probate to be finalized.

The requirements section will call out any loans that show on the property so that the loans are paid and the release of the loan is obtained upon payment through the escrow. Sometimes the title commitment will show two deeds of trust on a property, yet the seller has only a single loan. Let your escrow officer know right away, they will need to obtain a Release of Deed of Trust from the previous lender, or a letter of indemnity from the previous title company that issued the title insurance. Additionally, any judgments, tax liens or taxes will show in the requirement section so that these items are also satisfied during the closing. Occasionally, these liens will show up as a result of a common name. In that case, the client may be asked to supply additional information showing that they are not the same person in the judgment. These are all items which will need to be cleared and it is important to be sure that they are being taken care of. Be sure the escrow agent has all loan payoff information e.g. account numbers etc.

An Owner’s Policy on vacant land may require an ALTA survey, this will be noted in the requirement section.

Schedule BII Exceptions

This section shows all of the title “issues” that are excepted from coverage – in other words, the title company will not insure for these issues. These include items such as covenants, conditions, and restrictions (CC&Rs); easements (utility or access) and/or mineral rights and reservations.

Reviewing is not Advising

When reviewing the title commitment with your buyer or seller, you should not advise them about the legal meaning or effect of any document contained in the title commitment. That would constitute legal advice and is prohibited under Arizona law. When the parties involved in the transaction spot a problem on the title commitment, that should be brought to the attention of the parties involved.

The title commitment is a crucial part of the closing process and provides all parties and their agents with notice of the current state of title. A thorough review of the title commitment immediately after issuance can save everyone time in the end and lends to the successful closing of transactions.

Contact Title Security Agency for all your title and escrow needs. We are committed to making each transaction a smooth one.

If the Seller is not a citizen or resident then the next question is:
Does the Buyer have definite plans to use the property as his residence (definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant) AND the sale price does not exceed $300,000? If you can answer yes to both of these questions then the transaction is exempt from withholding.

If the sales price is more than $300,000 and the seller is a foreign person then withholding is necessary. The buyer is required to withhold 10% of the sales price. Withholding on the full sales price is required even if the transaction is one in which an installment sale is being done.

It is the buyer, not the seller, who is obligated for withholding and reporting required by FIRPTA at the time of the sale. Unless the transaction is exempt from withholding, the buyer must report the sale to the I.R.S. on Forms 8288 and 8288-A, and pay the required tax withholding, by the 20th day after the date of transfer. The “date of transfer” is the first date consideration is paid or a liability transferred (excluding payments before title passage such as earnest money and deposits). This deadline is extended to the 20th day after the I.R.S. accepts or denies a legitimate application for a “withholding certificate” if the application is filed on or before the transfer date. In order to complete the appropriate reporting forms or apply for a withholding certificate the foreign person must have a tax identification number (ITIN). To apply for an ITIN the foreign person must file form W7 with the IRS.

Prior to a transfer, the seller may apply for a IRS withholding certification to reduce or eliminate the required amount of the withholding. The IRS is required to act on a request for a withholding certificate within 90 days of receipt of the application. Once the withholding certificate is granted then the escrow may release the 10% (amount withheld in escrow at closing) to the Seller. If the withholding certificate is denied then withholding amount must be tendered to the IRS within 20 days of the issuance of the denial of the application.

The IRS generally grants withholding certificates (no withholding required if certificate issued) for the following reasons:
1. 10% withholding exceeds seller’s maximum tax liability;
2. Seller is entitled to nonrecognition treatment (e.g.1031 Tax Deferred Exchange)or is exempt from tax;
3. An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.

For a full list of exemptions:
Full List of Exceptions

If you are a foreign seller you should determine if an exemption or reduction is applicable to your transaction. Then provide notice to your buyer and apply for your withholding certificate (if applicable). In any case, the seller should be sure to file an annual tax return for the disposition. Any taxes withheld will be credited toward the tax owed.

Let us know what you think? Are you seeing more and more foreign buyers or sellers? How might FIRPTA impact your next transaction?

Additional helpful FIRPTA links:
Here are some helpful links to further understanding FIRPTA:
Cornell Education FIRPTA
(Note: “Transferee” = Buyer, “Transferor” = Seller)

Internal Revenue Service – FIRPTA WITHHOLDING

Internal Revenue Service –
Reporting and Paying Tax on U.S. Real Property Interests

Internal Revenue Service – Withholding Certificates

Internal Revenue Service –

Definitions Unique to FIRPTA

Internal Revenue Service –

Foreign Persons Receiving Rental Income From U.S. Real Property

Arizona Association of Realtors – The Foreign Investment in Property Tax Act (FIRPTA)

We want to hear from you please weigh in.

ESCROW TIP

The Short Sale Addendum lines 22 – 27 and 40 reference the Agreement Notice. Delivery of the Agreement Notice is what prompts the deposit of the Earnest Money.

Including the Agreement Notice with the contract when opening escrow, will assist your Escrow Officer and complete the opening process.

of your Notary Public?

Arizona Notary Public requirements for the purchase of Real Estate are specific and the forms of identification which are acceptable are very specific.  The  client’s identification must have the following characteristics:

• Valid/unexpired
• Issued by the US Government – establishing legal presence in the US
• Includes a picture and described physical features
• Where there is a loan the lender requires 2 Forms of ID be shown at closing
• For purposes of real estate conveyance and financing, a notary may accept the following forms of ID:

1. A valid unexpired passport issued by a national government other than the United States government and that is accompanied by a valid unexpired visa or other documentation that is necessary to establish an individual’s legal presence in the United States.
2. Any other valid unexpired identification that is deemed acceptable by the United States Department of Homeland Security to establish an individual’s legal presence in the United States and that is accompanied with supporting documents as required by the United States Department Homeland Security; passports without visas from qualified individuals who are visiting from countries participating in the Visa Waiver Program.  Visit www.state.gov for a list of such countries; Identification accepted from certain visitors from Canada and Mexico under the Western Hemisphere Travel Initiative.  Visit www.getyouhome.gov for more information.

If the Seller or Buyer have any questions relating to the forms of identification, which may be required at closing by the Notary Public, contact your Escrow Officer to determine what ID may be acceptable.

Title Security Agency is committed to assisting in making every closing a successful transaction.  Each Escrow Officer involved in a closing is well versed in the requirements of the Notary Public.  Contact your Escrow Officer today for further details!

Lines 59-61 of the Arizona Residential Resale Real Estate Purchase Contract outlines the return of the earnest monies.

The 17 states are: Arizona, Arkansas, Colorado, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, and Wisconsin. On January 1, 2013 Nebraska’s death deed act will go into effect.

                Each state has specific laws that govern the use of the deed in their state.

Aside from states that recognize transfer on death deeds by state statute, at least three states – Florida, Michigan and Texas – recognize an “enhanced life estate deed,” also called a “Lady Bird Deed,” under state common law. In these states, an enhanced life estate deed functions in a manner similar to a transfer on death deed.

                The beneficiary deed is a relatively easy and inexpensive way to transfer real property and aids in avoiding probate. Since this type of transfer is seen by many as an easy and inexpensive way to transfer real estate, many assume that the use of an attorney to prepare the document is unnecessary. However, as with any estate planning, a consultation with an attorney is probably best. Estate tax limits change constantly and consideration must be given to the tax implications which may arise upon the death. The taxes are just one consideration when contemplating the use of a beneficiary deed there are many others factors to consider. The attorney drafting the estate plan will review and discuss the clients entire estate. The attorney will also ensure that a durable power of attorney exists, with specific provision to permit the revocation of a beneficiary deed. A revocation may become necessary if the grantor becomes incapacitated. Such incapacitation without a durable power of attorney could further complicate matters especially for caregivers of the incapacitated party.

              Upon the death of the grantor to the beneficiary deed, further documentation is necessary to effect the end intended result of the deed. Such as, recordation of the death certification and an affidavit. A beneficiary deed which is executed but never recorded has no effect on the property as the statute in Arizona (§33-405) requires that the deed be recorded. This requirement prevents any transfer to occur on someone’s deathbed.

If you would like to read more about beneficiary deeds we have found the article written by Thompson Law Group to be most helpful. The article can be found here.

The preparation of documents by Title Security Agency and its Escrow staff can only take place when a transaction is opened for the purchase, sale, loan or refinance of a property. As such, preparation of beneficiary deeds are not part of the services offered by Title Security Agency.

If you have questions or comments regarding this blog post contact Brigitte Echave at Brigitte.Echave@TitleSecurity.com or 520-722-2578.

Are you looking for a way to make a difference? Title Security Agency is always looking for a way to make a difference in the lives of others in our community. If you would like to join us, please consider donating your new or gently used shoes for a good cause. Any shoes collected will go to Casas de los Ninos, the Primavera Foundation or to Soles 4 Souls.

If you would like to donate contact Ellen Gille at ellen.gille@titlesecurity.com. Help make a difference in the life of someone else!

Below are the upcoming community service projects and drives we have planned:

Tomorrow, Saturday, September 22nd and Saturday October 20th, 10:45 a.m. to approximately noon – Make sandwiches for the Casa Maria Catholic Workers House to distribute to the hungry, poor and homeless – at St. Pius X Catholic Church, 1800 N. Camino Pio Decimo, Tanque Verde Room – If interested, just show up and make sandwiches and assemble sack lunches, over 600 lunches are made in two hours. Employees, friends, family members and children welcome. (This event occurs every four weeks).

Saturday, October 13th, 9:00 a.m. to noon – Community Food Bank of Southern Arizona, 3003 S. Country Club, #221 – Pack food boxes on an assembly line. This is a 3 hour commitment. This is our third time doing this event, it is work, but, we have a lot of fun. Employees, friends and family members are welcome to join in, must be 16 years old and must wear closed-toed shoes, no sandals. If you wish to participate, please RSVP to Ellen Gille (ellen.gille@titlesecurity.com) by October 5h.

During the month of September – Did you know that over 1.5 billion pairs of shoes lay idle in American closets? We are having a new and gently used men’s, women’s and children’s shoe drive to benefit Primavera, Casas de los Ninos and Soles for Souls. We have placed a collection box at the Main Office.

The picture contained herein is of a recent Ben’s Bell event!

Please consider joining in – together we can make a difference!
Thank you,
The TSA Community Service Committee

Straddling a Tax Year – Failed Exchange Tax Reporting – September 2012 Newsletter

Be sure to cover this issue with the servicer as early in the transaction as possible. Ask your Escrow Officer at Title Security Agency about completing a Specific Power of Attorney for this transaction. Once the Seller has signed, before a notary public, the Power of Attorney the original should be delivered to escrow, preferably well in advance of the closing on the short sale transaction.

Your Escrow Officer at Title Security Agency stands ready to assist you with your Short Sale closing and welcomes any questions you may have. A list of the Escrow Officers for Title Security Agency can be found on our website here.

               Whether you have 2 or 22 years of real estate experience, the main purpose of real estate education is to ensure that you remain familiar with the changes that are always impacting our business.  The knowledge we can glean from others in the business as well as the situations we encounter every day are invaluable.  The continued growth and success of our businesses as well as the personal growth received through continuing real estate education may sometimes be overlooked but are none the less extremely valuable to each and every one of us.

               Every month Title Security Agency hosts the C. David McVay Schools in our training room located at our main office on Tanque Verde.  Over the past few decades, David McVay has been there to guide and educate real estate professionals.   He spends many hours pouring over current data and information on the industry and stays current on changes so that he can convey these changes during his seminars.  His humor only adds to the information you receive and allows each participant a moment to laugh at situations they themselves have probably encountered at some time during their tenure in the real estate business.

               The real estate finance industry is constantly changing.  The credit class or real estate finance class always contains current information.  These two classes offer many suggestions for solving credit and finance issues.  Investors are making their way back into the market and the finance class as well as credit class will help to load your investor tool box with ideas on how to help your investor with their lending and credit issues.  Speaking of investors another class that is offered each month through the TSA monthly education is the 1031 Tax Deferred Exchange class.

               The 1031 Exchange class is valuable to the Realtor® that wants to assist their investor clients in maximizing their returns on each investment property.  Whether an investor is looking to sell now or in the future the information obtained in the class is invaluable.    More investors are returning to the marketplace and getting the latest information relating to this subject will only enhance your business.

               As you can see Title Security Agency remains committed to your professional growth and success.  Find a class that works for you, visit our class calendar today! Remember, Title Security Agency is your partner when it comes to Tucson Real Estate Education.

If you have questions or comments concerning this blog post contact Brigitte Echave – 520-722-2578 or Brigitte@LeverageExchange.com. Visit Leverage Exchange Group.