PATH Act Increases Withholding Rate up to 15%

FIRPTA PATH Update February 17, 2016

FIRPTA PATH withholding explanationOn December 18, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015. This law creates significant changes to the provisions of the Internal Revenue Code of 1986, which amended the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

What does the new rule change about withholding requirements?

Settlement agents must begin holding back 10-15% proceeds from the sale of real property by foreign nationals. Property bought by foreign persons that will be used as a personal residence is exempt from the increase if the sales price does not exceed $1,000,000. If the previous exception for personal residences does not apply, the 10% withholding rate is retained. If the price is higher than $1,000,000, the new 15% withholding rate will apply.

Download

Download a printable version:
PATH ACT FIRPTA update

What are the benefits?

The PATH Act benefits the real estate industry by doubling the maximum amount of stock ownership that a foreign investor may have in a real estate investment trust (REIT) from 5% to 10%. Another additional benefit is that the law permits certain foreign pension funds to invest in REITs without having FIRPTA treatment apply.

When does it go into effect?

The PATH Act is effective 60 days after Obama signed it into law. This applies to sales on and after FEBRUARY 17, 2016.

What are the guidelines settlement agents must follow when remitting funds to the IRS?

  1. If the amount realized is $300,000 (typically the sales price) or less, and the property will be used by the foreign buyer as a residence (within current regulations), no amount will be withheld or remitted to the IRS.
  2. If the amount realized above $300,000 but does not exceed $1,000,000 and the property will be used by the buyer as a residence, then the withholding rate is 10% of the entire amount realized.
  3. If the amount realized exceeds $1,000,000, then the withholding rate is 15% on the entire amount, regardless of how the property is used.

Are there any obligations for FIRPTA withholding by the real estate agent or broker?

If you represent the buyer or seller of real property subject to FIRPTA withholding, you could be liable for the tax that should have been withheld by the buyer in certain circumstances.

If you have additional questions about the PATH Act, please contact a tax professional.

Ticor Title Spokane Valley Expands Team!

Ticor Title Spokane Valley Expands Team

Ticor Title Spokane Valley Expands TeamWelcome Pam Koep and Melissa Stewart!

Location & Contact

16201 E Indiana Ave, Suite 3300
Spokane, 99216
Phone: 509-928-9665
Fax: 855-885-2346

Online

TeamPam@TicorTitle.com
TicorSpokane.com

We are pleased to announce the expansion of our new Spokane Valley Operation with the addition of Pam Judge – Closer/LPO, and Melissa Stewart – Escrow Assistant. We believe that every successful closing begins with a great team. Please join us in congratulating Pam and Melissa for joining Team Ticor!

Pam Koep – LPO/Escrow Closer

Pam began her career in 1999 as a receptionist and worked her way up into title and landed in escrow about 14 years ago. An LPO for 3 years, she is very organized and likes to stay on top of her files, delivering CD’s or HUDS as quickly as possible.

Clients commend Pam for the way she explains documents to their clients and facilitates timely signings. Her goal is to make transactions flow smoothly for everyone.

Pam is a Northwest native with one child. She spends her free time outdoors and enjoys camping. She also enjoys doing crafts, traveling, and time with family and friends.

Pam Koep

LPO/Escrow Closer
Spokane Valley Office
(509) 742-5305
pam.judge@ticortitle.com

Melissa Stewart – Escrow Assistant

Melissa has been in the Title & Escrow industry for over eight years and is known for her attention to detail and structured approach to working with clients and transactions. She prides herself on her ability to cultivate positive relationships and takes a team approach to achieving goals.

Melissa loves to travel and experience the adventure of new sights, cultures, and food. On the weekends, you might find her spending quality time with family, reading a good book, or playing tennis with her hubby.

A Spokane resident of 27 years, Melissa attended middle school and high school there before earning a degree in Elementary Education from Eastern Washington University.

Melissa Stewart
Escrow Assistant
Spokane Valley Office
(509) 742-5304
melissa.stewart@ticortitle.com

Escrow Workflow – 12 Steps to Closing with the TRID Forms

As we all know, the Closing Process has changed since the enactment of the new TRID rule. And with the implementation of new forms, lenders and settlement agents work together to determine a workflow for the completion and delivery of the Closing Disclosure during the closing process. Below is one example that illustrates the process and shows which items the Lender typically performs and which items Escrow typically performs.

Download

CFPB Escrow Workflow

Download a PDF of the CFPB Escrow Workflow here.

Who Completes the Closing Disclosure?

Lenders and settlement agents may agree to divide responsibilities with regard to completing the Closing Disclosure with the settlement agent assuming responsibility to complete some or all of the Closing Disclosure.

Who Delivers the Closing Disclosure?

The rule makes the lender responsible for ensuring that the consumer receives the Closing Disclosure. Lenders may work with the settlement agent to have them deliver the Closing Disclosure to consumers on their behalf.

Typical Escrow Workflow:

PERFORMED BY LENDER

PERFORMED BY TICOR TITLE

Open Order

Lender will send order request through Real EC to the Ticor Title Escrow unit. The Escrow unit will open the escrow and request title report and order any payoffs required.

1
  2

Confirmation of Order and Preliminary Report

A confirmation is sent to the lender that the escrow order is opened and the preliminary report will be uploaded to Real EC.

Documents Request

A CPL, fee quote, wiring instructions and any other documents that are requested by the lender will be uploaded to RealEC.

3  
  4

Closing Disclosure Preparation

Upon delivery of lender’s instructions, the escrow unit will prepare the closing disclosure and upload to Real EC for lender review and approval.

Delivery of Closing Disclosure

The Lender or escrow unit will prepare and deliver the closing disclosure to the borrowers as instructed and within the timeframe as required by the lender.

5

Delivery of Closing Disclosure

The Lender or escrow unit will prepare and deliver the closing disclosure to the borrowers as instructed and within the timeframe as required by the lender.

Closing Instructions and Loan Documents

Lender will prepare Closing Instructions and Loan Documents and send to escrow unit through Real EC.

6  
  7

Signing / Consummation

Once received, escrow will schedule an appointment with the borrowers to sign the loan documents upon the expiration of the disclosure period.

  8

Loan Documents to Lender

The escrow unit will return executed loan documents and provide any outstanding conditions through Real EC that are required for the lender to provide funding authorization.

Funding Requirements

Lender provides additional funding requirements to Ticor Title Escrow & Escrow provides requirements to Lender.

9  

Lender Funds

Lender sends funds to Ticor Title Escrow unit.

10  
  11

Recordation

Once the wire is received from the lender, the escrow will record the Deed of Trust and any additional required documents with the County Recorder’s office. ~ The original recorded documents will be uploaded to Real EC and sent to the lender as required.

  12

Final Title Policy

The title company will send the final title policy to the lender as per their lender’s instructions.

Ticor Title Expands to Spokane Valley

Ticor Title Spokane Valley

Ticor Title Spokane ValleyWe are pleased to announce the opening of our new Spokane Valley Operation and that Mick Templeton AVP / Branch Manager / Escrow Closer, Melody Sarff, Escrow Assitant, and Tricia Osterholm, Escrow Assistant have joined our Spokane Ticor Team and will staff our new office.

Mick and his team have been serving the real estate community in the Spokane Valley area for many years as an independent escrow operation.

Please join us in congratulating the new members of our team!

Mick-Templeton-150
Mick Templeton
AVP/Branch Manager/
Escrow Closer
Melody-Sarff-150
Melody Sarff
Escrow Assistant
Tricia-Osterholm-150
Tricia Osterholm
Escrow Assistant

Where to find us

16201 E Indiana Avenue, Suite 3300
Spokane Valley, WA 99216
(509) 928-9665

Owner’s Premium & Simultaneous Issue Discount – Under the New CFPB Rules

owners premium simultaneous issue

If a buyer opts not to purchase an owner’s policy, in most states they would not receive the benefit of a simultaneous issue discount applied to the loan policy premium. Currently, in a typical residential transaction, a lender quotes the discounted rate on a Loan Estimate.

However, any increase in this premium would result in a tolerance violation or increased annual percentage rate. Therefore, the CFPB wrote into the new rules any simultaneous issue discount must be applied to the owner’s policy premium and not the loan policy premium.

Therefore, when the new CFPB rules are implemented, the lender will need to disclose the full lender’s policy premium on the Loan Estimate and the preparer of the Closing Disclosure will charge the full loan premium. The new formula for calculating the owner’s premium with the simultaneous issue discount applied is as follows:

Owner’s Premium
+ Simultaneous Issue Rate
Full Loan Premium
= Owner’s Rate

The new calculation method applies regardless of which party to the transaction is paying the owner’s policy premium. For example, the premiums on the purchase of a $300,000 residence with a $240,000 loan closed simultaneously with actual premiums are as follows:

Owner’s Policy Premium $1,090
Loan Policy Premium (Full Rate) $ 928
Loan Policy Premium (Simultaneous Issue Rate) $ 469

On a transaction closed prior to the effective date of the new rules the seller would pay $1,090 and the buyer would pay $469. On the same transaction closed after the effective date of the new rules the disclosure would reflect the seller paying the calculated premium of $631 and the buyer paying the full loan premium of $928.

The title provider will still receive all the total premium dollars due to them. However, the seller ends up paying $459 less than obligated and the buyer ends up paying $459 more than obligated.

OP&SI_Discount_Ticor

The only way the formula works is if one of the parties to the transaction is paying both policy premiums, which in most markets is not customary. As a result, our systems have been designed to provide an off–setting debit to the seller for the balance of the owner’s premium and an offsetting credit for the same to the buyer.

The disclosure amounts, and off–setting debits and credits only appear when the Closing Disclosure is printed using the Company’s escrow production systems. Any other document, such as a closing statement or fee ticket, will print the premium dollars in the normal fashion.

Announcing the Ticor Title TRID Wheel

TRID Wheel

The Ticor Title TRID Wheel is the only wheel that instantly determines earliest Consummation Date!

TRID Wheel to determine Consummation Date
Based on the new CFPB rule that goes into effect beginning Oct. 3, 2015, this carefully crafted and well planned TRID Wheel is designed to eliminate the guesswork in determining earliest Consummation Date.

Use the wheel to:

• Instantly determine earliest Consummation Date
• Estimate required closing days by working backwards on the wheel

Reserve Yours Today!

Contact your Ticor Title representative to reserve your Ticor Title TRID Wheel today. Supplies are limited.

Announcing the Relocation of Ticor’s Gig Harbor Office

Gig Harbor Escrow - Ticor Title

Gig Harbor Escrow - Ticor Title
We are very pleased to announce that Ticor’s Gig Harbor Escrow office has relocated to an updated and more spacious location just a few doors down from the previous location.

The move is part of our plan involving the expansion of our Gig Harbor team and provides a freshly updated space with additional room to accommodate client signings, added escrow staff, and a dedicated Property Information Specialist.

We think you’ll love the upscale look & feel, accessibility, ample parking, easy access to highway 16, and our team of experienced professionals.

Where to find us:

Ticor Title
Gig Harbor Escrow Location

New address:
5775 Soundview Drive, Ste 204B
Gig Harbor, WA 98335

Phone: 253-858-2999
Fax: 253-858-3171

[WRG id=6241]

How the CFPB Three-Day Waiting Period Works


In addition to the delivery period we discussed in our previous video, lenders must ensure the borrower receives the Closing Disclosure no later than three business days before consummation. This is referred to as a waiting period.

Three Business-Day Waiting Period

The CFPB final rule requires the lender to give the borrower three business days to thoroughly review the Closing Disclosure to enable them to compare the charges to the loan estimate and ensure the cost and loan program they are obtaining are as expected. In our previous video, we explained the waiting period begins on the day the Closing Disclosure is sent. It does not start the next business day!

Waiting Period Example

Closing Disclosure Timeline - CFPB

If the Closing Disclosure is delivered by mail, email, courier or fax on a Monday, it is assumed that the delivery period expires on Wednesday at midnight. Then the waiting period begins, which means the loan may not be consummated less than three business days after the Closing Disclosure is received by the borrower.

The waiting period includes Thursday, Friday and Saturday, therefore the borrower would be able to sign on the next business day which is Monday, unless Monday is a federal holiday.

Exceptions to the Rule

If signing is scheduled during the waiting period, the lender must postpone signing unless closing within the waiting period is necessary to meet a bona fide personal financial emergency. Consumers may waive their right to receive the Closing Disclosure three days prior to consummation only if they have a bona fide personal financial emergency.

Bona fide personal financial emergencies are extremely rare and determining whether one exists is fact intensive. The only example provided by the CFPB is the imminent sale of the consumers’ homes through foreclosure, where the proceeds of the new mortgage can save the home from foreclosure, which isn’t very realistic.

Revisions to the Closing Disclosure

If there are changes to the loans APR, changes to the loan product, or a prepayment penalty is added to the loan after the Closing Disclosure has been delivered to the borrower, then the lender must ensure the Closing Disclosure is revised and a new delivery period and waiting period begins. For any other changes which occur before the consummation that do not include the three we just discussed, the lender must provide a corrected Closing Disclosure with any terms or cost that have changed and ensure the borrower receives it; there is no additional three business day waiting period required.

The lender must ensure only that the borrower receives the revised Closing Disclosure at or before consummation. There is no delivery or waiting period for the seller. The settlement agent must provide the seller its copy of the Closing Disclosure no later than the day of consummation.

Rescission

The rule did not make any changes to the existing rescission requirements under regulation Z. This means if the borrower is refinancing their existing loan, then the delivery, waiting, and three day right to resend applies. Keep in mind the rescission timeline is calculated differently than the delivery and waiting periods. The first day of the rescission period starts the day after all borrowers have received their notice of right to resend.

How the TRID Closing Disclosure Delivery Period Works


The new TRID rule has very strict requirements as to the delivery of the Closing Disclosure. The Closing Disclosure must be delivered to the borrower at least three business days prior to the consummation of the loan. If the Closing Disclosure is hand delivered, a waiting period commences which we’ll discuss further in a later post.

If the Closing Disclosure is delivered by mail, email, courier, or fax a delivery period of three business days precedes the waiting period. The delivery period does begin on the day the Closing Disclosure is sent. It does not start the next business day.

Delivery Example

Closing_Disclosure_Timing4-blue_03If the Closing Disclosure is delivered by mail, email, courier, or fax on a Monday it is assumed the delivery period expires on Wednesday at midnight.

Who Delivers the Closing Disclosure?

The rule makes the lender responsible for ensuring that the consumer receives the Closing Disclosure. Lenders may work with the settlement agent to have them deliver the Closing Disclosure to consumers on their behalf. Lenders and settlement agents also may agree to divide responsibilities with regard to completing the Closing Disclosure with the settlement agent assuming responsibility to complete some or all of the Closing Disclosure.

The lender must maintain communication with the settlement agent to ensure the Closing Disclosure and its delivery satisfy the requirements described above and the creditor is legally responsible for any errors or defects.

In the end, the CFPB will hold the lender responsible for ensuring the preparation and delivery of the Closing Disclosure is done properly regardless of who actually prepares the form and delivers it.

Wells Fargo Leads Industry

Wells Fargo led the industry by informing them of their intention to deliver the Closing Disclosure to the borrower. In September of 2014 they issued a statement which read:

Evidence of delivering the borrower’s Closing Disclosure with receipt at least three business days prior to closing are critical requirements for us. The data to support this must be readily accessible for internal and external audit. We considered many factors, such as the large number of settlement agents who close Wells Fargo loans in local markets, their closing volumes, limited integration capabilities to provide compliance data to us, and the evolving use of electronic delivery within the Wells Fargo loan process.

At this point in time, we believe that this critical compliance evidence can only be provided if Wells Fargo delivers the Closing Disclosure directly to our borrowers to meet the three-day requirement, including when a change occurs that requires the three-day clock to be restarted. We still must work closely with you to ensure we have accurate information on this disclosure, and because of the early collaboration needed, we are hopeful that this will create a smoother closing for everyone.

Title Products & Rates – How they’re disclosed under the new TRID rule


This video discusses how the charge for the lenders and owners title policy must be disclosed on the loan estimate and the closing disclosure.

Where is the discount applied on the Loan Estimate and Closing Disclosure?

Traditionally, when an owner’s title policy and a loan title policy are issued at the same time, insuring the same property, a discount is applied to the cost of the loan policy. In order to prevent an increase in the loan policy premium paid by the borrower in the event where borrower elected not to purchase an optional owners policy, the CFPB requires any simultaneous issued discount be applied to the owner’s policy premium and not the loan policy premium.

How is the discount disclosed?

The rule states any title insurance policy disclosed on the loan estimate and the closing disclosure must be disclosed by adding the simultaneous issue loan premium discount for the lenders title insurance coverage to the owner’s title insurance premium and then deduct the amount of a full premium rate for the lenders title insurance policy that would be charged in the transaction when the consumer declines the purchase of an owner’s policy.

Mathematically, it all works out if the borrower is paying for both the owners and lenders title policy. Because in the end, the borrower still plays the same.

What if the Seller pays for the Owners’ Title Policy?

In areas where the seller customarily pays for the owners’ title policy, the disclosure requirements on the loan estimate and closing disclosure end up costing the buyer more than they would customarily pay. Here’s why; if the seller agreed to pay for the owners title policy and the buyer agreed to pay for the lenders title policy, but the simultaneous issue discount being offered by the title company can only be applied to the owners title policy, then the seller realizes the benefit of the discount. Keeping in mind, the discount is only offered on the lenders title policy premium.

Here’s an example:

Sale price is $180,000, the buyer is obtaining a $162,000 loan towards the purchase of the property. The purchase and sale agreement states the seller has agreed to purchase an owners title policy for the benefit of the buyer. The full premiums for each policy are: owner’s policy premium $838, lenders policy premium, at full premium rate, $727. Remember, if the policies are issued simultaneously, the lenders policy would be less; it would be $360 which represents the charge for the lenders policy premium at the simultaneous issue rate. Keeping in mind the seller is the one who agreed per the sales agreement to pay the full premium amount for the owner’s title policy.

Here’s how it would compute:

Owners’ Title Premium   $838
Simultaneous Discount Off Loan Title Policy + $360
Full Loan Premium $727
$471

Loan title policy charge on the loan estimate and the closing disclosure is $727 paid by the borrower. Owner’s title policy charge on the closing disclosure is $471, which represents the charge for the owner’s title policy less the simultaneous discount for the loan policy. $838 for the owner’s title premium plus $360 for the simultaneous discount off the loan title policy minus $727 for the full loan premium, the total is $471 paid by the seller. This means the seller needs to give the buyer a credit for $367, which represents the difference between the charge for the owners title policy less the simultaneous discount.

Full Loan Policy Premium   $727
Simultaneous Discount Off Loan Title Policy $360
  $367

$727 full loan policy premium minus $360 equals $367.

In order to reconcile the charges to comply with the new rule and follow the written mutual instructions of the principles to the transaction as agreed to in the purchase and sale agreement, a debit from the borrower to the seller will have to be shown on the third page of the closing disclosure in the summaries of transactions section.

We have it covered

Don’t worry, all of the company systems are being updated, customers can still obtain accurate fee quotes which would be in compliance with the regulations using our website. Settlement agents’ production systems will be programmed to ensure the charges are disclosed properly and the purchase agreement is followed.