Showing posts with label Escrow. Show all posts
Showing posts with label Escrow. Show all posts

5/28/2019

What Is the California Tax Withholding for Buyers and Sellers?

Kitty says "Keep your eye on your withholding tax"
Very often sellers are unaware of this California tax withholding requirement to pre-pay their tax due on the gain of their property, and may equate it with capital gains tax or property taxes.

For income property sellers, and those doing property exchanges, installment sales and other transfers, this information may be most important:

The escrow officer must notify the buyer of his/her responsibility to withhold 3 and 1/3 percent of the gross sales price of real property sale, whether by an individual or non-individual such as an LLC, corporation, trust, etc., and pay it to the Franchise Tax Board, UNLESS an exemption applies.

The exemptions include sales less than $100,000; property last used as a principal residence; sales of decedent's principal residence by the estate; sale by 1031 exchange; seller's tax liability, calculated at the maximum rate (currently 12.3%) on the taxable gain, regardless of seller's actual rate, will be less than 3 1/3% of the gross proceeds and seller certifies that fact under penalty of perjury. 

For sellers in the pre-listing stage who are wanting to calculate their ultimate seller's net after a sale should be sure to give all such information to their tax adviser, if that is who is doing their calculations. Escrow is responsible for notifying the buyer of their responsibility to withhold, and the buyer must do so when escrow closes.  If the seller's actual tax rate is different than 12.3% above, then they need to consult with their tax advisor on the status of their particular state income tax requirements. 

See more information from the Franchise Tax Board  .


Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

4/24/2015

New Transaction Closing Rules with CFPB - Part II

Note:  The new start date is October 1, 2015. 6/28/2015.
Mark August 1, 2015 as the date on which transactions will be impacted!

The Consumer Financial Protection Bureau is an independent agency which operates withoutCongressional supervision, one of the few such entities in the country, and is considered a least accountable agency (by just about everybody including Congress).  It oversees banks and financial institutions, credit unions, students loan, credit card companies, payday lending companies, mortgages, foreclosures.  (It resulted from the Dodd Frank Act which came into place as a result of the economic crash, and its director was appointed by President Obama.)

The CFPB is not federally funded, but instead issues fines to banks for their bad behavior:
Wells Fargo - $24 million; Chase - $11.7 million, NewDay Financial - $2 million; and just the other day, per their website "Green Tree to Pay $48 Million in Borrower Restitution and $15 Million Fine for Servicing Failures".  Yes, there have been failures by the banks, but how we got to a bureau that seems to have no oversight seems to be borrowing a page from the bank failure book.

But for now, consumers, lenders, escrow, title and real estate agents are at the beginning of changes will are most certainly to lengthen the average 30-day transaction to 10-15 days longer.

New terms:
Escrow=settlement agent
Lender=creditor
Day loan docs are signed=consummation day
Close of escrow day=settlement day
LE=loan estimate (no longer a good faith estimate)
CD=Closing Disclosure (replaces HUD-1)

Buyers and sellers, get familiar with all terms but know that "CD" is a 5-page disclosure which must be received by the borrower a minimum of 3 business days before signing of loan documents.  It doesn't matter if you can read and sign in 3 hours, you must wait 3 business days before loan documents can be signed.  What if you ask the seller, and the seller agrees, to compensate the buyer $350.00 towards the buyer's closing costs during escrow?  The borrower receives a new CD and must wait 3 business days.  If the lender decides to mail out the CD to the borrower instead of allowing digital signature time, then the lenders will give a total of 7 business days from send out.

Sellers, I can only say this:  Make reasonable repairs, including all carbon monoxide and smoke detector placements where required,  prior to listing to avoid delays with appraisers calling out such repairs, which will require a second visit by the appraiser, and which also costs the borrower more, in order to avoid these delays.
Buyers, If you decide to make an offer on a property which requires numerous or even just a few, repairs, be prepared for a longer transaction, because everytime a change is made, a new 5-page CD goes out to the borrower from the lender.  You can see how the time starts adding up, going well beyond the existing 17 and 21 days for buyer to investigate and remove contingencies.
Other examples of changes which will require 3 business day re-disclosure:
Changes in APR; changes in the loan product; addition of a pre-payment penalty.
Realtors must be prepared for these changes and be able to work with their clients on these timelines.

A sample calendar provided to me recently shows Day 1 starting on a Monday (Saturdays are included as business days, Sundays are excluded), going all the way through to Day 38 in a NORMAL transaction showing the lender's schedule, but this calendar did not take into account what else could be happening between the buyer and seller during the various contract contingency period, which is how further issues and additional time periods could come up. There is much that will be found out on a practical level when the time comes, because there are still unknowns in these new requirements.
Additional issues:  Lenders may refuse to work with certain escrow companies, and therefore buyer and seller may not be able to choose in some circumstances, because the lender may force both parties to transfer the file to another company.  Please remember, California escrow companies already are "vetted" and responsible to the Department of Business Oversight which maintains their own rigorous standards.

At this point, consumers need to change some of their expectations, both with their loans and the property transaction itself, and who they may be able to select for services.
These are nation-wide changes, not just something happening in one county or one state.  Some industry professionals are saying they've never seen anything like this during their 30 or 40 years in real estate (and they don't mean it in a nice way), so what happens after August 1 will be different--that much we know.



4/23/2008

The Terms in Your Offer to Purchase



In a 10-page contract, there are quite a few terms and conditions to cover with a buyer when they're writing one with the agent, or with sellers when they receive one from an interested buyer. If using a Realtor as your agent, then you should be using the standards forms with the California Association of Realtors logo imprinted at the top and which are used statewide in residential transactions (logo at right). This post won't answer all questions, by the way, your own case will be individual to your concerns and interests.


  • Expect to take some time meeting with your agent the day you make an offer. It's pretty hard to do in five minutes (as I've had some people actually expect). You need to understand buyer contingencies; you should have already contacted a loan officer and bring a letter or certificate or pre-approval with you to the meeting; and be prepared to write a check for the deposit money, which will be held in trust by your agent until submission to escrow.


  • The Loan: While funding the loan could remain a contingency throughout the escrow (it's negotiable with the seller), obtaining your down payment and costs of the loan is not, and the contract says "buyer shall act in good faith to obtain the designated loans"--which means that even if one source in this volatile market may no longer be able to help you, you have to do your very best to find another loan in order to honor your agreement with the sellers. After all, you said you would buy the house from them, they've made their arrangement to move one, they may in contract themselves with another purchase they worked hard to find and negotiate, and they're counting on you to perform. Also, you should have already worked out what monthly payment you're comfortable with, because if your agent does not write in a maximum interest rate for your loan on the contract, you could be legally obligated to pay any interest rate, no matter how high.

  • Escrow Time: This is another negotiated item, both the provider and the length of time. The usual time is 30 days, but what if the buyer has to give notice, or sell, or what if the seller needs more time to move out, or has a contingency to buy a new home; or what if the buyer's loan is FHA which typically takes a little longer for cosing ... then 30 days might mean 45-60 days. AND, if you decided to purchase a "short pay" property, your escrow time would more likely be 60-90 days because most banks aren't working that quickly on those approvals ... so then if you're financing that property, your interest rate environment could change in that period of time. Be prepared.

  • The Appraisal: The appraiser is sent out by the lender to appriase the property, and often the contract requires the buyer to remove that contingency within 17 days. The seller wants to move one, and the buyer wants to know the selling price and appraisal are in agreement. This is just one of several areas where if there is no agreement, the buyer may cancel (not will, "may"). Appraisal reviews are more common, take up additional time in escrow, and even if they don't delay the close, nerves could be frayed over this issue.

  • Buyer Inspection(s): This is a major contract contingency, so on the day the buyer has his/her physical inspection, you should be able to follow the inspector around as much as possible and ask questions, or certainly at the end, and most certainly when you get your report, which also the seller receives. Because the buyer has only so many visits to the property before it closes, it's tempting to use that time for home decorating ideas and measuring for furniture. But later on, if an issue comes up, you the buyer might wish you had paid more attention to that inspector while he/she was there, and whom you paid for the inspection.

  • Are tenants currently living on the property? Make sure your contract covers their departure or their continuing occupancy.

  • Seller Disclosures: The contract spells out the timeline and the nature of these disclosures, and the buyer right to cancel. Carefully look at the Transfer Disclosure Statement, and if you still have questions, take the time to follow up with your agent. The seller is supposed to disclose known defects, but the sellers don't always know absolutely everything about their property. Buyers must do their "due diligence", which is the buyer is given 17 days and a separate buyer inspection form to let them know all the issues to look into if necessary. There are other numerous documents to sign, including the natural hazard report, California tax report, lead-based paint, water heater, smoke detector, and other required or recommended forms, as much as 17-18.

  • Taking Title: You need to instruct the escrow officer , and if necessary, get legal advice about how to do this, whether you're single, divorced, married, have a trust, etc. Are you taking joint tenancy, community property with right of survivorship, sole proprietor? How title is taken can affect future legal rights.

These are just a few of the basics of dealing with an offer, other issues include dealing with homeowner associations, liquidated damages and arbitration/mediation. Buying or selling a home is a significant event for most people, it's important to set aside the right amount of time for it. The more you prepare yourself in advance the less chance you will have buyer or seller remorse about how your transaction was handled. Dian Hymer's "Starting Out" is a good publication for buyers.


4/09/2008

Long Beach Market Absorption Rates



The absorption rate is how long the current inventory will remain on the market at the current rate of selling. In all price ranges shown, there are more properties currently in escrow than have closed escrow in the last 30 days. Hopefully that means that the economic stimulus package and temporary increase in loan amounts is bringing a surge in activity.

Here are several different listing and selling price range categories for all properties (commercial/residential but mostly residential including large multiunits) in Long Beach listed on the MLS as of 4/9/2008:
346 E Carroll Park
$1 million plus listing price:
260 active listings; 10 sold in the last 30 days at an average of 107 days on the market; Market Absorption Rate is 26 months. But in this price range there are currently 26 in escrow (backup and pending).

$600,000-$699,000 listing price:
207 active listings; 17 sold in the last 30 days at an average of 76 days on the market; Market Absorption Rate is 12 months. There are 34 in escrow (backup and pending).

$500,000-$599,000 listing price:
296 active listings; 31 sold in the last 30 days at an average of 98 days on the market; Market Absorption Rate is 9.5 months. Currently there are 56 in escrow.

$400,000-$499,000 listing price:
433 active listings; 41 sold in the last 30 days at an average of 87 days on the market; Market Absorption Rate is 10.5 months. Currently there are 88 in escrow.
1044 E 2nd St #11
$300,000-$399,000 listing price:
476 active listings; 29 sold in the last 30 days at an average of 75 days on the market; Market Absorption Rate is 16 months. Currently there are 75 in escrow.

Per the MLS, there are 2664 active listings and 443 properties in escrow in Long Beach.

10/04/2007

California's Updated Property Tax Withholding Laws


California's property tax withholding laws have been revised recently, and below are some basics per the legal counsel of California Association of Realtors.
An important thing for buyers and sellers to note is that the REALTOR is not the person charged with informing the buyer and seller, it is the escrowholder (although it certainly helps if your REALTOR is knowledgeable and prepares you beforehand).
If the escrow officer does not inform the buyer of their requirements to withhold, then the buyer is not obligated to withhold the money from the seller. (This concerns California law only; the IRS also has additional requirements.)
"Buyers must withhold 3 1/3 percent of the gross sales price on sales of California real property interests from both individuals (e.g., "natural" persons) and non-individuals (e.g., corporations, trusts, estates) and pay this amount to the Franchise Tax Board (FTB), unless an exemption applies (Cal. Rev. & Tax Code §§ 18662(e)(1)(A), (B), (2)(A)). Escrowholders must give buyers written notice of these withholding requirements. If the escrowholder fails to give the buyer this written notice, then the buyer is off the hook for the withholding tax liability. ( (Cal. Rev. & Tax Code §§ 18662(e)(3)(B).) Typically, the escrowholder submits both the form and money withheld to the FTB.
The exemptions include:

the sale of property for less than $100,000 (Cal. Rev. & Tax Code § 18662(e)(3)(A)); for individuals,


the sale of a principal residence or a property last used as a principal residence (Cal. Rev. & Tax Code § 18662(e)(3)(D)(i));

the sale of a decedent's principal residence by the estate (Cal. Rev. & Tax Code § 18662(e)(3)(D)(i));

the sale of property by a corporation with a permanent place of business in California (Cal. Rev. & Tax Code § 18662(e)(3)(D)(v));

an Internal Revenue Code (IRC) § 1031 exchange (without any recognized gain)(Cal. Rev. & Tax Code § 18662(e)(3)(D)(ii));

an involuntary conversion under IRC § 1033 (Cal. Rev. & Tax Code § 18662(e)(3)(D)(iii));

the sale of property at a net loss (or a net gain not required to be recognized) for California income tax purposes (Cal. Rev. & Tax Code § 18662(e)(3)(D)(iv));

seller's tax liability, calculated at the maximum rate regardless of seller's actual rate, will be less than 3 1/3% and seller certifies that fact under penalty of perjury. (For tax rate for corporations, see Cal. Rev. & Tax Code § 23151 or 23186; for maximum tax rate for other sellers, see Cal. Rev. & Tax Code § 17041.) (Cal. Rev. & Tax Code § 18662(e)(2)(B).)"

The required amount withheld in escrow must be transmittd to the FTB within 20 days after the close of escrow, and during escrow, the escrow officer should provide the buyer with an instruction form for the escrow officer to transmit those funds.

3/12/2007

Basics of Your Loan

These days with so much in the news about subprime loans gone bad, it's also important to know that statistically, these represent a small percentage nationally.
"The truth is that 99% of all loans in the U.S. are not in
foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:
* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 - Low: 12,145- 3Q’04 High: 59,987 – 1Q’96 Current: 37,273
* For all of ‘06, foreclosures accounted for only 1.81% of all Orange County sales, with lenders reselling those homes at an average discount of only 3.8%!" Gary Watts, p. 4 of Real Estate Outlook 2007.

To avoid future dissatisfaction, find out now what to expect to see at your closing when you're faced with a stack of paper to sign. You want to know about three basic parts of your loan papers: The note, the deed of trust (or trust deed), and your HUD-1 statement.

The Note secured by a deed of trust includes the interest rate, payment terms and may include pre-payment penalty terms and other provisions. Make sure these are what you were told you were getting.

The trust deed will show the names of the trustor (borrower), trustee (usually the title company which holds title on behalf of beneficiary), and beneficiary (legal holder of the Note), and includes how the buyer will be taking title, and a legal description of the property and prepayment terms. You need to carefully check all of these before signing for any errors. Bring the legal description from your preliminary title report given you in escrow to refer to. (Even title companies can make mistakes: One time I was representing a buyer in escrow on a property and saw that the seller's name on the tax records had been replaced by the buyer's of the neighboring property because of an inaccuracy in recorded documents.)

The government HUD-1 statement is your final accounting of costs and disbursements for your property transaction. Save this form, as well as the rest of your transaction records, in your files. This document is included with your escrow closing package.

If you want assistance at the time of closing, ask your Realtor or loan officer to be there with you during your appointment, or ask them to be available by telephone in case you have questions when you sit down with the escrow officer.

And, last but not least, while I as a Realtor work with loan professionals I trust and may make a recommendation to you, you the buyer should search out your loan options with other professionals to satisfy yourself. This is also not the time in your life to assume your friend or relative who has been in the business 6 months is going to give you the assistance you need. Loans require extensive knowledge. I have been asked questions by buyers in escrow, who should have been asking these questions of their own Realtor, about lender services they are now unhappy with after their buyer contingencies have been removed and they may risk losing their deposit. Ask how long that loan officer has been in the business on a fulltime basis, if they can be reached when they are out of town, and who can you contact in their office if they are not available immediately, i.e., their loan processor. These questions are not a guaranty, but the answers may give some hints at the service and competence you will be receiving. There is much information on the internet, a lot of it negative, fear-driven, inaccurate or inapplicable to you, but there is no reason why you the buyer shouldn't be attempting to learn about your upcoming loan and home purchase as much as you can.

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