It’s September, 2021 and the pandemic still has us in its thrall, with questions still aimed at vaccinations, masks, schools, travel, and life in general. However we address COVID, life does go on, thank goodness, and so does business. Which means that we have many businesses transferring hands at this time. Restaurants, nail salons, other service industries, it’s good to know that entrepreneurs are starting to take chances even though uncertainty in the future still abounds.
And what questions can we answer for you this month?
YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions emailed/called in to us)
“Question – “Does a property in a trust have to be taken out of trust to secure a deed of trust for a home equity second and put into the borrowers’ name or can the Trustees sign as the trust on the deed? What are the risks to the financial institution if the deed is listed under the trust?
Answer – Whether it is a regular mortgage or a home equity line, most lenders require a property to be taken out of the Trust in order to do a loan on it. It has to do with the type of loan program involved and its underwriting conditions. One of the main reasons is that they need to be able to bundle it with other loans and sell them to an investor or to the GSE (Government Sponsored Entities, aka Fannie Mae and Freddie Mac) on the secondary market. So they are looking for a standard cookie cutter loan. However, there are lenders who make the loans and keep them in their own portfolio and those are more amenable to lending to a Trust. Reverse Mortgages, by the way, are different and many are lent under the Trust.
Will there be more risks? I would think that there is no more risk for the Lender and the same amount of responsibilities for the Borrower. Under a Revocable Trust the responsibilities pass through to the individuals who are the Trustors/Trustees, so Lenders will hold the individuals liable and it will be their individual credit that is affected. The collateral is the property, of course, so foreclosure is always on the table in the event of non payment.
Educational Moment: Don’t forget! Once the property is taken out of the Trust, be sure to put it back into the Trust after the refinance transaction is completed. And if your insurance was changed to reflect you as an individual insured for the refi transaction, you might also ask your insurance agent to change it back into your Trust name also.
Question – My father is a foreigner and he wants to sell the property he owns in Florida. I am his daughter and I have lived in the property for 12 years. He wants to give me the proceeds so I can buy a new home in Iowa. The property being sold is $300,000. Will he need to do a FIRPTA? Should he do a 1031 Exchange?
Answer – This was a call-in question and the first thing I said was, “Whoa! Lots of separate issues here!” So we had a long conversation. The gist of it is as follows, broken down by topics, which really are inter-related to each other.
Firpta issue – As a foreigner, the father would need to apply for a U.S. Tax ID number in order for the 10% withholding to occur. HOWEVER, as the contemplated sale price is $300,000, if the Buyer signs a Declaration that he will occupy the property for 50% of the time during the first two years of ownership, then there is no need for the withholding of Seller proceeds through escrow at all.
1031 Exchange issue – If the father has been renting the property to the daughter, he can buy another property in Iowa to rent to the daughter through a 1031 Exchange. However, he would still need to get his own Tax ID number to do his income tax return in the future.
Another scenario to think about – If the father is a foreigner and the daughter is an American citizen, her father could transfer ownership to the daughter as a gift, before the sale. As an American citizen owner the daughter would have no need for withholding and no need to do a 1031 exchange for the new property. However, are there tax implications to this “gift” for the father or the daughter? As always we ended the discussion with, “Please contact your own CPA to find out.”
Educational Moment – The caller was from Florida and she confirmed two things: (1) Floridian closing agents and CPAs apparently don’t do a lot of foreigner transactions so when there are FIRPTA issues the clients do have to go online to find answers to their questions. I was glad to help. (2) It was smart of the caller to consider all financial aspects first, before she entered into a transaction so that the correct planning could be done. If she had not done so it might have gotten a lot more complicated for her father as well as for herself.
Do you have other questions I can answer for you? Please feel free to email me at info @ vivaescrow . com
~ Sound of the Month~
Instead of a funny video let me introduce you to
Pentatonix – in their rendition of
The Sound of Silence
~ Quote of the month ~
I decided to stop calling the bathroom the “John” and renamed it the “Jim”. I feel so much better saying I went to the Jim this morning
My YouTube offering for the month:
You would think that in the sale of a property, who the Seller is should be pretty easy. It’s the person on the latest ownership deed, right? Maybe not!
You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
Info @ VivaEscrow.com