Seller Tip: Foreign Sellers: Foreign real property owners are subject to certain withholding requirements when selling their U.S. property. In a real estate transaction involving a foreign seller, the Foreign Investment in Real Property Tax Act (“FIRPTA”) requires ten percent of the gross sales price be withheld from the sales proceeds received at closing. This withholding is remitted to the Internal Revenue Service as a deposit on the income tax liability generated from the sale. When the actual tax resulting from the sale is reported on the seller’s tax return, the withholding will be applied and the seller will either remit a sum to satisfy the outstanding balance or will receive a refund of any excessive withholding.
Buyers Tip: Buyers obtain legal title to a piece of real estate by means of a deed from the seller. The two primary forms of deeds are the quit claim deed and the warranty deed.
By signing a warranty deed, a seller “Guarantees” that he has full title to the property, is competent to transfer the property and that the property is is not burdened by such encumbrances as liens, leases or rights-of-way other than those disclosed in the deed. The seller also guarantees that he will defend the buyer against anyone who attempts to claim title to the property and to fix any errors that might be found regarding the property title.
A quit claim deed is a statement of release of whatever interest the seller may have in a piece of property. It states that the seller is “Uncertain” what her legal interests in the parcel may be, but to the extent that such interests exist, she is releasing those interests to the buyer. In using a quit claim deed, a seller is not “Guaranteeing” that she owns the property.
Quit claim deeds are often the most appropriate form of real estate transfer between family members or when title to real estate changes because of divorce. A quit claim deed is also used to relinquish an unexercised option to purchase real estate.
As a buyer, never let a seller talk you into selling their property with a quit claim deed. One of the main reason a seller will do this is because they are trying to save money by not providing you with title insurance to protect your investment. You have no “Guarantee” that you are buying a free and clear property or even if they have full ownership rights to sell.
This is very similar to buying a brand new car from a dealership and the dealer not giving you a warranty. You would ask yourself, “why is this”?
When buying real estate, always seek advice from a real estate attorney or your local realtor to review all documents before you sign.
“The information contained herein has been obtained through sources deemed reliable but cannot be guaranteed as to its accuracy. Any information of special interest should be obtained through independent verification.”