YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
QUESTION:
I am buying a property in Northern California and have a Seller who is a foreigner. We are closing escrow tomorrow. I read up regarding the foreigner withholding issues and your article was very comprehensive. I want to make sure my understanding is correct. The property is under $1,000,000 and so the withholding is 10% based on the sales price of $800,000. Is that correct? The Seller’s CPA keeps insisting that he did the calculations and the capital gain is only about $25,000 so he is insisting that the withholding amount is only $25,000. My CPA does not know at all and the Title Company who is handling the escrow does not know anything about the process of the withholding and refuses to give clear guidance to the Seller. What should I do?
ANSWER:
What you stated is correct. The withholding is 10% of the sales price, not the capital gain.
As the buyer you would be considered the Withholding Agent. If you do not ask the Title Company to withhold and send out the correct withholding with the correct forms then if there is any problem in the future, you will be held responsible in the eyes of the IRS. It is your name and social security number and address on the most important 8288 form. They will come after you for differences, penalties, and interest. The Seller will be long gone.
As the buyer and the Withholding Agent you must instruct your escrow officer to withhold the correct 10% amount and send it out with the correct forms. Ask them to send you a copy of everything they send out, including a copy of the check, which should have your tax id information on it to match the 8288. If the escrow officer does not know how to do this withholding, you must demand that she run this up the management pole and make sure the right management person is made aware. This is a large, national Title Company and I am absolutely aghast that their management has not educated their escrow staff. Not having the staff educated places a huge financial risk on their company.
I would absolutely tell the Seller and escrow company not to close escrow until your demands are met.
EDUCATIONAL MOMENT:
If you are opening escrow on a transaction and you think the Seller is a foreigner, be sure you ask the escrow company BEFORE you open that they know how to handle the foreign FIRPTA withholding.
The Buyer is the Withholding Agent. Anything that is not done correctly, the Buyer will be the one the IRS contacts. They may look to the escrow company to rectify the mistake, either by contacting the IRS or paying the IRS demand.
I have many FIRPTA withholding educational videos on my Think Escrow! YouTube channel.
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QUESTION:
My client is out of the country and as he is the Seller, escrow sent him a Grant Deed to sign and notarize at the American Consulate. He went ahead and did a Remote On Line signing instead. His signature and the notary’s signatures were all electronically signed and this was forwarded to the Escrow Officer. However, the escrow officer noticed that there was an error on the legal description of the document. Unfortunately, she could not correct it but is asking that the Seller go through the whole process again and re-sign with a new Remote On Line signing. Why could the escrow officer not just slash out and re-type in the corrected legal description? My Seller is upset that he has to go through this whole process again and spend additional money.
ANSWER:
Remote online notarization is using digital electronic technology to connect the signer and the notary person. The notary’s primary goal is still the same – confirming the identity of the person they are signing with. The burden of veracity is much higher due to it being done in the electronic medium where video face-to-face verification and review of identification can be more difficult.
In a RON signing, once done, all of the parameters for the signing are permanently set in the document metadata and can no longer be changed. This permanent metadata (think of a block on a blockchain which can be examined by any interested party) provides the certainty to allow the Title Company and County Recorder to process the recording of a RON document.
If anyone prints out the document and makes changes, the changed document is no longer a true and correct copy of the original and will no longer be valid or accepted by the Title Company or the County Recorder.
EDUCATIONAL MOMENT:
It is extremely important that the signer advise the escrow company BEFORE they sign that they are signing using RON and not a traditional notary service. This is why:
(1) The title company has to agree that they will insure this document and they have to make sure that the County Recorder will record it. Not all title companies will allow this type of RON signing.
(2) The title company has to approve the RON platform that will be used, make sure they are reputable and have a strong background in digital technology and data securement.
(3) The escrow company must make sure that all the information on the document is correct. This includes, names, vesting, mailing addresses, property address and, of course, the legal description.
For those who are interested, I did a story from the Escrow Trenches regarding Remote On Line Notarizations a few years back, and this is the link on my Think Escrow! YouTube Channel: https://www.youtube.com/watch?v=UjAeTBE_xHw
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~ Funny of the Month ~
~ Quote of the Month ~
All of us could take a lesson from the weather. It pays no attention to criticism.
~Author Unknown ~
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My YouTube Offering for the Month –
Escrows can be like dominos. Set it up correctly and one push sets up the ripple, for them to fall correctly. However, when there are 3 escrows in a row and something untoward happens, the domino effect can be excruciating!
Here is the link:
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You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
Advance Disclosure:
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
Info @ VivaEscrow.com