INTERNATIONAL INVESTOR BUYING FACTS:
Arizona Revised Statute A.R.S. 6-843 requires that escrow agents not disburse money from an escrow account until funds related to the transactions have been deposited and available. The good funds law specifies which forms of payment are acceptable for deposit.
Available days are considered business days. A business day is defined as a calendar day other than Saturdays, Sundays and certain major holidays.
The chart below summarizes the “availability” of most common types of deposits.
DEPOSIT TYPE
Bank Wire, Electronic Payment/Transfer Cashier’s, Certified or Teller’s Check
Official Checks - Drawn on Local** FDIC Institution Official Checks - Drawn on Non-Local and/or Non-FDIC U.S. Treasury Checks or Postal Money Order All Other Money Orders (Non-U.S. Postal)
Federal: Reserve, Credit Union & Home Loan Bank Checks Local** State, County & Municipal Government Checks
(must be in-state & local**)
Non-Local State, County & Municipal Government Checks (5th Day)
Local** Checks Including: Personal, Corporate, Credit Union, Money Market & Traveler’s Checks
Non-Local** Checks including: Personal, Corporate, Credit Union, Money Market & Traveler’s Checks
On-us Checks***
*Business Day: Funds are potentially available on the Business Day indicated above. A Business Day is defined as a calendar day other than Saturday, Sunday, and excludes most major holidays. If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is excluded from the definition of a business day. NOTE: Individual banks may require additional “hold” periods longer than shown above.
**Local: A Check is considered “Local” when it is drawn against a bank located in the same processing region as the depository bank. The check processing region for the State of Arizona is the Los Angeles Region. Any check with a four- digit ABA Number beginning with “12” or “32” is Local.
***On-us Checks: Next day availability is dependent on the check being drawn against the same bank or branch as the depository bank and is the same check processing region, meaning the ABA Numbers must begin with “12” or “32” .
What is an Escrow?
Escrow is the deposit of funds and/or documents with a third party, by one party for delivery to another party with a third party to be held until the fulfillment of certain conditions.
Arizona, as well as many of the Western states, use escrow agents as settlement agents. In most of the rest of the country, attorneys handle the closing and settlement process.
“Commitment to Service”
What is an Escrow Officer?
An escrow officer is a neutral third party agent that protects the interest of all parties to the transaction.
What your Escrow Officer does for you:
• Receives and holds all funds for disbursement upon escrow closing. • Manages funds and/or documents in accordance with escrow instructions. • Disburses funds such as recording fees, payoffs, seller proceeds, etc. • Responds to requests from the principals and communicates with all parties. • Closes the escrow only when all terms and conditions have been met.
What your Escrow Officer does not do:
• Provide legal advice • Negotiate terms of the transaction • Provide investment advice
What should a Buyer expect?
Documents
Buyers should expect to execute various documents throughout the course of the transaction. One of the documents Buyers are asked to complete is an Identity Statement. An Identity Statement enable the title and escrow company to distinguish the Buyer’s name from others with identical names during a records search.
Loans
If the Buyer does not plan to pay cash, assume the seller’s loan, or have a seller financing agreement, they will need to apply for a new loan. Buyers may wish to get pre-qualified for a loan prior to making an offer on a property to expedite the purchase process.
Acknowledgement
Buyers should expect to receive various documents that will require an acknowledgement, such as:
Seller’s Property Disclosure Statement Covenants, Conditions and Restrictions (CC&R’s) Home Owner’s Association Documents (HOA) Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards Planned Unit Development (PUD) Inspections such as property, termite and septic
Title Commitment
Buyer will receive a copy of the preliminary title report/ commitment once the title search has been completed. The purpose of the title commitment is to locate potential problems so that they can be corrected prior to closing, and to allow the transfer of ownership to proceed.
What is Title Insurance?
A Title Insurance policy protects you against problems affecting the title to your home or property. Basically, there are two types of title insurance - an Owner's Policy, and a Loan Policy. The Owner's Policy protects you, the homeowner, for your investment in the property for as long as you or your heirs have an interest in the property. The Loan Policy protects the lender for the amount of the loan.
Before a title policy is issued, a title search of the public records is made in an effort to locate potential problems so that they can be corrected and the transfer can proceed (one third of all transactions reveal a title or public record defect). While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal.
Examples include:
Someone other than you owns your property
Forgeries in the chain of title
A claim by a previously undisclosed relative of a former owner
Unpaid taxes and assessments
Unpaid judgments
Unpaid deeds of trusts and mortgages
A title search also discloses easements, rights-of-way, restrictions, and mineral reservations among other matters
Remember: Title Insurance protects you against the potential loss of your most valuable asset - your home or property.
In addition to the standard title policies just described, Pioneer Title Agency also handles the following title insurance products:
ALTA Homeowner's Policy Extended Owners and Lenders Policies Other Lender Policies Trustee's Sale Guarantees Judicial Litigation Guarantee Reports
Community Property
PARTIES
Requires a valid marriage. Only husband & wife.
DIVISION
Each spouse holds and undivided 1/2 interest. Ownership is equal.
TITLE
One spouse cannot partition property by selling their interest.
POSSESSION
Spouses have equal management requiring both to convey/encumber.
PURCHASER
Purchaser acquires whole title of community property, not partial or one-half.
DEATH
The estate, upon death, must be cleared through probate or adjudication.
SUCCESSOR
Tenancy in Common between devisee & survivor results if passing by will.
TAX BASIS
Both halves of property are entitled to a “stepped up” tax basis at date of death.
Community Property with Right of Survivorship
TAX BASIS
Both halves of property are entitled to a “stepped up” tax basis at date of death.
Joint Tenancy with Right of Survivorship
TAX BASIS
Deceased tenant’s share is entitled to a “stepped up” tax basis at date of death.
Tenancy in Common
PARTIES
Any number of persons may be tenants in common.
DIVISION
Ownership can be divided into equal or unequal (fractional) interests.
TITLE
Each owner can convey, mortgage or devise their portion of the property.
POSSESSION
Equal right of possession requires all owners to convey/encumber whole.
PURCHASER
Purchaser becomes a tenant in common with existing property owners.
DEATH
Decedent’s interest passes by will to heirs or devisee. No survivorship rights.
SUCCESSOR
Heirs or devisee become tenants in common.
TAX BASIS
Each share has its own tax basis.
Joint Tenants
PARTIES
Requires a valid marriage. Only husband & wife.
PARTIES
Any number of persons may be joint tenants.
DIVISION
Each spouse holds and undivided 1/2 interest. Ownership is equal.
DIVISION
Ownership interest must be equal and undivided.
TITLE
One spouse cannot partition property by selling their interest.
TITLE
One joint tenant can sell their joint interest.
POSSESSION
Spouses have equal management requiring both to convey/encumber.
POSSESSION
Equal right of possession requires all joint tenants to convey/encumber.
PURCHASER
Purchaser acquires whole title of community property, not partial or one-half.
PURCHASER
Purchaser becomes a tenant in common with existing property owners.
DEATH
No court action required to clear title upon death of first spouse.
DEATH
Estate passes to surviving joint tenants outside of probate.
SUCCESSOR
Estate passes to surviving spouse outside of probate.
SUCCESSOR
Last survivor owns property.
IMPORTANT NOTE: Arizona is a community property state. Property acquired by a husband and wife is presumed to be community property unless legally specified otherwise. Title may be held as “Sole and Separate.” If a married person acquires title as sole and separate, his or her spouse must execute and record with the county Clerk and Recorder a Disclaimer Deed to avoid the presumption of community property. Parties may choose to hold title in the name of a corporation, limited liability company, partnership (general or limited), a trust, or other entity. Each method of taking title has certain significant legal and tax implications. Obtain the advice of an attorney , tax consultant, or other qualified professional.
F.I.R.P.T.A. = Foreign Investment in Real Property Tax Act of 1980
If a Buyer purchase a home for $300,000 or less AND intends to occupy the property as their primary residence, withholding is not required on the sales proceeds.
Otherwise, FIRPTA requires a 10% withholding on the gross proceeds.
Unless, Form 8288-B is filed, then 10% withholding on the “adjusted gain.”
Form W-7: Application for IRS Individual Taxpayer Identification Number (ITIN) should be filed with 8288-B.
Additional Information Specific to Canadians:
Canadians do not have the option of deferring taxes in a tax-free exchange or in an installment sale.
There is no $250,000/$500,000 exemption for Canadians.
Canadians must file U.S. Non-resident tax return (1040NR) Due after sale
Due annually if property is a rental
For additional FIRPTA requirements, publications and forms go to www.irs.gov.
What restrictions are there for Canadian buyers purchasing homes in Arizona?
None. There are no restrictions on foreign nationals buying U.S. or Arizona property.
Can Arizona lenders provide financing for Canadian buyers?
Yes, it’s done all the time. Your real estate agent can help you find a lender who has experience in lending to foreign nationals.
What are the fees associated with BUYING a property in Arizona?
Arizona does not have a real estate transfer tax.
Your “closing cost” will vary from lender to lender, and from one loan program to another. Some of the fees associated with your loan are: home inspection, termite inspection, appraisal, escrow fee, title insurance, county document recording fees, and if the home has a Home Owners Association (HOA), additional HOA fees.
In addition, at closing you will pay for some future expenses in advance. These “pre-paids” may include property taxes and homeowners insurance.
Attorneys are not typically involved in Arizona residential real estate transactions, so that is an expense you will not have when purchasing real estate in Arizona.
Will Canadian buyers be subject to capital gains tax when they sell their Arizona property?
Yes, foreign nationals are subject to U.S. capital gains taxes on real estate sales. Because the U.S. Internal Revenue Service (IRS) can’t easily go after foreign nationals to collect this capital gains tax, there are special U.S. tax “withholding” requirements when foreign nationals sell real estate.
The Foreign Investment in Real Estate Property Tax Act (FIRPTA) imposes U.S. tax on income and gains from real estate owned by “non-resident aliens” at the same graduated rates applicable to U.S. persons. A non-resident alien is someone who has not been granted permanent resident status in the U.S.
Typically, when a non-resident alien sells U.S. real estate, ten percent (10%) of the purchase price will be “withheld” for potential taxes. The seller may, in fact, owe no taxes...or the seller may, in fact, owe more than the ten percent (10%) withheld.
The seller will want to file a U.S. income tax return at the end of the year so any overpayment to the IRS will eventually be returned to the non-resident alien seller.
Also of interest, many homes that are sold for les than $300,000 are not subject to this ten percent (10%) withholding, although the seller is still obligated to pay the full amount of any capital gains tax due.
Interested buyers should contact an accountant or lawyer for details.
Will Canadians pay tax on rental income generated from Arizona investment property?
This is complex but, yes, the IRS will tax income from real estate owned by non-resident aliens at the same graduated rates applicable to U.S. persons. Interested buyers should contact an accountant or lawyer for details.
For more information on Investor buying in Chandler, Arizona :
Contact We Make Your Move EZ!
Mary E. Elliott
and
Susan Z. Hernandez
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