Interested in receiving the latest title insurance, real estate and legal industry news? Click here to sign up for our free Newsletter.
Until recently, a short sale of a mortgage held or guaranteed by Freddie Mac and Fannie Mae could only be made if the mortgage was in default. Existing guidelines issued by these government sponsored entities (GSEs) were similar, but never identical. On July 3, 2012, the Federal Housing Finance Agency (FHFA) issued a directive to Freddie Mac and Fannie Mae requiring them to streamline and standardize their short sale guidelines to their mortgage servicers. The new guidelines will become effective on November 1, 2012. The FHFA believes that this guideline change will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.
The most significant change allows borrowers with a Freddie Mac and Fannie Mae mortgage who are not in default to be eligible for a short sale. These borrowers will have to demonstrate that they are subject to one of the following hardships:
Significantly, Freddie Mac and Fannie Mae servicers will no longer need to obtain additional approval from Freddie Mac and Fannie Mae when non-defaulting borrowers are able to demonstrate one of these hardships.
For those borrowers who are currently in default and who are deemed most in need (because they are in default for 90 days or more, or have a credit score of less than 620), the short sale approval process has been shortened. Servicers whose borrowers meet these requirements may approve a short sale without verifying the borrower’s hardship or obtaining a complete Borrower Response Package, which is required of all short sale requests.
The new guidelines will also prevent junior lien holders from slowing down the short sale process by limiting payments to junior lienholders. Any junior lien holder with a lien of more than $6,000 may not be paid more than $6,000, and total lien payments to all junior lien holders may not exceed $6,000.
A borrower who has sufficient income or assets may also be relieved of Freddie Mac’s and Fannie Mae’s right to pursue a deficiency judgment if the borrower agrees to make a financial contribution or sign a promissory note.
Those who are serving in the military are automatically eligible for short sales. Military personal do not need to make financial contributions to be cleared from deficiency judgments.
It remains to be seen if these changes will have a significant impact on preventing foreclosures.
On September 23, 2011, the Electronic Signature and Records Act (ESRA) was adopted and paved the way to make New York State the last state to permit digitized documents for land recordings. With the adoption of regulations on September 19, 2012 to implement ESRA, electronic recordings have been permissible since September 24, 2012, though only a small fraction of the counties of New York State are currently prepared to accept these recordings.
Westchester County
The Westchester County Clerk is prepared to accept all land records electronically via its “PREP” system or via the portal of key national electronic facilitators. To make electronic submissions, a Westchester County Registered Submitter Agreement must be submitted. The registration process takes one week. Scans may be submitted through the PREP system in portrait mode as either a PDF or TIF file at a minimum of 200 dpi. Payment for all electronic submissions must also be made electronically, via a pre-authorized debit account. Setting up a pre-authorized debit account also takes about a week to establish. Pre-authorized debit accounts may also be utilized to pay for hard copy submissions.
The Westchester County Clerk also offers training classes for instruction on the use of the PREP system, including aspects of electronic recording. Participants of this class will be eligible for two continuing legal education credits by the NYS Continuing Legal Education Board.
Currently, the Westchester County Clerk will accept all documents for electronic recording with two exceptions. If the document requires the submission of a “Nonresident Real Property Estimated Income Tax Payment Form” (IT-2663) and a payment thereunder; or the submitted document requires that an original document be attached as an exhibit, the documents may not be electronically submitted.
Rockland County
The Rockland County Clerk is prepared to accept all land records electronically via one of the following portal companies: CSC-Ingeo (www.ingeo.com) or Simplifile (john.riddell@simplifile.com). To make electronic submissions, a Rockland County eRecording Authorization Form must be submitted. Payment for all electronic submissions must also be made electronically via an Automated Clearinghouse Account (ACH), with one of aforementioned portal companies.
The eRecording Authorization Form may be obtained at the following link:
http://www.rocklandcountyclerk.com/clerkforms/eRecordingAuthorization.pdfIf a New York State Transfer Tax Return (TP-584) and the NYS Transfer Report (RP-5217) are required, they must be completed online and submitted electronically in PDF format.
The TP-584 can be obtained at the following link:
http://www.tax.ny.gov/pdf/2007/fillin/property/tp584_307_fill_in.pdfThe RP-5217 can be obtained at the following link:
http://www.tax.ny.gov/pdf/current_forms/orpts/rp5217.pdfFIRPTA, or the Federal Investment Real Property Tax Act, represents the federal government’s measure to ensure that gains on the transfers of real property by foreign investors are subject to income tax. With the recent increase in foreign investment in US real estate, practitioners should always be familiar with the basic concepts of FIRPTA to guard against possible liability under the statute and to ensure that transactions affected by the statute are not unnecessarily delayed.
FIRPTA imposes a withholding of 10 percent of the gross sales price on a sale of a U.S. real property interest by a foreign person. The buyer (or a designated escrow agent) must remit the withheld funds to the IRS within 20 days of the transfer. Reporting is accomplished using IRS Form 8288 U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests. Copies A and B of Form 8288-A must also be submitted to the IRS for each person who is subject to withholding. Copy C is retained by the submitter. Thereafter, the IRS will stamp Copy B of Form 8288-A, and send it to the transferor. The transferor can then attached the stamped Copy B of Form 8288-A to a U.S. income tax return (Form 1040NR, U.S. Nonresident Alien Income Tax Return, or 1120-F, U.S. Income Tax Return of a Foreign Corporation) or application for early refund filed with the IRS.
The withholding does not represent the actual tax due, but is merely an advance payment of the individual or corporate income tax due. If the amount of tax due shown on the income tax return is less than the amount due, the taxpayer will be entitled to a refund.
U.S. real property interests include not only direct interests in real property, but also interests in domestic or foreign corporations that own real property, known as U.S. Real Property Holding Corporations (USRPHC). A corporation is considered a USRPHC if it holds U.S. Real Property interests that are 50 percent or more of the fair market value of all of its combined U.S. and foreign real property entities and its business assets.
Since withholding is not required if the buyer receives an affidavit from the seller that they are not a foreign person, understanding the definition of foreign person under FIRPTA is crucial. FIRPTA defines foreign persons as nonresident alien individuals, or foreign corporations that have not elected to be treated as a domestic corporation, or a foreign partnership, trust, estate or other entity. Resident aliens with valid green cards or persons who satisfy the substantial presence test are not deemed foreign persons under FIRPTA. The substantial presence test is satisfied if a foreign person spends 31 days in the United States during a calendar year and the sum of (1) the number of days spent in the United States in the preceding year multiplied by 1/3; and (2) the number of days spent in the United States in the preceding year multiplied by 1/6 is equal or greater than 183 days.
FIRPTA withholding can also be avoided or minimized by obtaining an IRS withholding certificate. The certificate may state that the transferor is subject to reduced withholding, exempt from withholding or has made arrangements with the IRS to ensure income tax payment. The withholding certificate may be applied for by either the transferor or the transferee, though usually it will be applied for by the transferor. Since the IRS may take up to 90 days to process a withholding certificate, submitting a Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests) early in the process is recommended.
Withholding is also not required if (1) the buyer intends to reside in the property for at least 50 percent of the days that the property is used during the first two twelve month periods following the transfer date; and (2) the total consideration is not greater than $300,000.
If you have any questions or would like further information regarding any of the articles in this newsletter, please contact Keith Eng, Esq.at (212) 651-1200 or keng@prestitle.com or Anthony Chiellino at achiellino@prestitle.com or (212)651-1200.
Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.
Click Here to See Our Previous News Letters