New RESPA Rule FAQs - HUD-1 Forms

1) Q: How are courier and overnight delivery fees shown on the HUD-1 Settlement Statement?

A: Courier and overnight delivery fees are considered to be fees for administrative or processing services. They are part of a primary service, such as the origination service or title service, and may not be separately itemized.

2) Q: Does voluntarily using the HUD-1 in a transaction that otherwise is not subject to RESPA result in RESPA applying to the transaction?

A: No, using the HUD-1 form does not subject a transaction to coverage under RESPA.

3) Q: Does "conducting a settlement" (from the definition of "title service") have the same meaning as "conducting the closing"?

A: Yes. The terms "conducting a settlement" and "conducting the closing" have the same meaning under HUD's RESPA regulations and are subject to identical requirements under the regulations.

4) Q: What if at closing the seller is paying for a settlement service that was listed on the GFE, such as the Owner‘s title insurance policy? How is this shown on the HUD-1?

A: If the seller is paying for a service that was on the GFE, such as Owner‘s title insurance, the charge remains in the borrower‘s column on the HUD-1. A credit from the seller to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209 and Lines 506-509 respectively.

5) Q: If there are additional government recording fees, such as to record a power of attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they be charged separately?

A: Line 1201 is used to record the total government recording charges. Additional items the lender requires to be recorded, other than those already enumerated in Line 1202, must be itemized on Line 1206. The charges for these additional items must be stated outside the column.

6) Q: How do settlement agents get the information to prepare page 3 of the HUD-1? Do they have to search through all of the loan documents to get this information?

A: The lender is required to transmit the information necessary to complete the HUD-1. The instructions for completing the HUD-1 state that the lender must provide information to the settlement agent in a format that permits the settlement agent to simply enter the necessary information to complete the loan terms section on page 3 of the HUD-1 without having to refer to the loan documents.

7) Q: Is it a violation of the tolerance if some of the items in the 10% category in the Comparison Chart exceed 10%, but other items in the category do not exceed 10%?

A: The tolerance applies to the total of all charges shown in the category ―Charges That in Total Cannot Increase More Than 10%.‖ A tolerance violation of this category means that the total of all actual charges in this category exceed the total of all estimated charges in this category by more than 10%.

*The preceding Q&A was originally published on the HUD website.

New RESPA Rule FAQs - General Information

1) Q: When does the new RESPA Rule take effect?

A: The November 2008 RESPA Rule was effective January 16, 2009. Implementation of the provisions are as follows:


2) Q: When does the revised required use definition take effect?

A: The revised required use definition was withdrawn by a separate final rule published May 15, 2009.

3) Q: Can a loan originator e-mail a GFE to a borrower?

A: Yes; as long as the borrower consents and the other specific requirements for consumer disclosures under the Electronic Signatures in Global and National Commerce Act (ESIGN) are met, a loan originator may e-mail, fax, or send by other electronic means the GFE (and other RESPA disclosures, such as the HUD-1/1A). See section 101(c) of ESIGN, 15 U.S.C. 7001(c); also see 24 CFR 3500.23. The loan originator may also continue to deliver the GFE to the borrower by hand delivery or by placing it in the mail, as provided by RESPA.

4) Q: RESPA and HUD‘s RESPA regulations require that certain records be retained for a period of time. Can those records be retained electronically?

A: Yes, if the person responsible for retaining records under RESPA and HUD's RESPA regulations meets the specific requirements and limitations applicable to the retention of electronic documents set out in the Electronic Signatures in Global and National Commerce Act (ESIGN), that person's responsibility will be satisfied by the retention of electronic records. See sections 101(d) and (e) of ESIGN, 15 U.S.C. 7001(d) and (e); also see 24 CFR 3500.23.

5) Q: Can we translate the GFE and the HUD-1 into languages other than English?

A: Yes, it is permissible to translate the GFE and the HUD-1 as long as the form has been translated accurately.

*The preceding Q&A was originally published on the HUD website.

How Well Do YOU Understand RESPA?

At its core, the Real Estate Settlement Procedures Act, better known as RESPA, is a consumer disclosure and anti-kickback statute intended to alert consumers about their settlement costs and to prohibit kickbacks that could increase the cost of getting a mortgage.

New RESPA regulations were published in November 2008 and are scheduled to take effect Jan. 1, 2010. To prepare for the changes, Federal Title & Escrow Company is hosting a free event for 100 guests, which will feature a presentation by mortgage banking and consumer finance expert Holly Spencer Bunting.

To attend this free event and learn more about RESPA, contact the marketing department at Federal Title.

Wondering just how savvy you are when it comes to RESPA? Take this RESPA Quiz created by Realtor.org and test your knowledge of the law.

Federal Title President Joins Expert Click Community

Todd Ewing, president of Federal Title & Escrow Company is among the newest members of the Expert Click community. Expert Click connects journalists and experts in a variety of fields. For information about the title insurance business, how to calculate closing costs and laws and regulations like the Real Estate Settlement Procedure Act, or RESPA, visit Todd's profile.

RESPA Reform Expert to Shed Light on Upcoming Changes

Mortgage banking and consumer finance expert Holly Spencer Bunting will educate real estate agents, mortgage lenders and members of the media about upcoming changes in RESPA regulations during a complimentary luncheon next month.

Federal Title & Escrow Company is hosting the event in the Dogwood Room at the Kenwood Golf & Country Club in Bethesda, Md. on Wednesday, September 16 beginning at 10 a.m.

Bunting is an associate with the Washington, D.C. office of K&L Gates, concentrating on issues of federal and state regulatory enforcement, according to the firm's website. She represents companies in the mortgage lending, title insurance and real estate industries in connection with regulatory compliance matters and defends clients subject to government audits, investigations and enforcement proceedings.

Additionally, Bunting advises clients about federal and state consumer credit and protection laws and regulations, including the Real Estate Settlement Procedures Act (RESPA). Consequently, Bunting has delivered several presentations on RESPA and compliance and written several articles about the consumer protection statute, including "Finally, a Final RESPA Rule," and "RESPA's New Average Charge Provisions – Available for Some."

Free RESPA Reform Luncheon, Presentation

Are you still chewing over the details of the new RESPA rule, wondering how the changes will affect your daily work routine?

Federal Title & Escrow Company invites you to hear the real story on RESPA and enjoy complimentary lunch in the Dogwood Room at the Kenwood Golf & Country Club in Bethesda on Wednesday, September 16 at 10 a.m.

Mortgage banking and consumer finance expert Holly Spencer Bunting will discuss the new RESPA rule, which goes into effect on the first of the year. Bring your questions for a Q&A session immediately following the presentation.

Here's what Holly had to say about her upcoming presentation:

Despite the U.S. Department of Housing and Urban Development's ("HUD" or "Department") publication of its final rule to amend the Real Estate Settlement Procedures Act ("RESPA") in November 2008, the rule continues to stir controversy as the effective date for the new HUD-1 Settlement Statement and Good Faith Estimate draws closer. While there is still hope that HUD will delay implementation of the new forms until the Department coordinates its efforts with the Federal Reserve, settlement service providers are gearing up for the January 1, 2010 effective date. This session will provide an in-depth overview of the components of HUD's final RESPA rule and the new HUD-1 and GFE disclosure forms.

Space for this free event is limited to the first 100 guests, so reserve your spot today! Last day to RSVP is Tuesday, September 8.

MD 1st Time Homebuyers: True/False

STATEMENT: As long as you have not owned a principal residence in Maryland in three years, you qualify as a Maryland First Time Homebuyer.
FALSE: The code does not provide a reset clause – if you have ever previously owned a principal residence in Maryland, no matter when, you are not eligible for the exemption.

STATEMENT: If you have previously owned a property in Maryland, but have never lived in that property, you qualify for the exemption.
TRUE: The requirement is that you must not have previously owned a principal residence in Maryland. Previously owning a non-principal residence does not disqualify you, as long as the property that you are purchasing will be your principal residence.

STATEMENT: It does not matter how you title the property, you will receive the exemption as long as you are a Maryland First Time Homebuyer.
FALSE: If the purchaser is a Trust, a Partnership, an LLC, or a Corporation, it can not qualify as a Maryland First Time Homebuyer.

STATEMENT: If two people are buying a principal residence, as long as one of the buyers has never previously owned a principal residence in Maryland, they can receive the exemption.
FALSE: Every purchaser who intends to live at the property as a principal residence must have never previously owned a principal residence in Maryland.

STATEMENT: While I qualify for the exemption, my parents who will be on title only to help me get the loan disqualify me since they already own a principal residence in Maryland.
FALSE: The Maryland Code will still allow the exemption as long as the parents sign an affidavit stating that they are a co-maker or guarantor of a purchase money deed of trust and that they will not occupy the residence as their principal residence.

What Do TILA Changes Mean for Lenders, Title Agents?

Changes to the Truth in Lending Act (TILA) now require lenders to provide consumers "early disclosure" of good faith estimates of mortgage loan costs and a minimum seven-day waiting period between disclosure and closing.

This means it's all the more important for lenders to obtain an accurate settlement fee quote from their title agent as early as possible.

The Federal Reserve has highlighted the major changes in the truth in lending early disclosure requirements in the chart below:

To avoid delays in the closing process, lenders must be precise. The new requirements also call for an additional three business days of wait-time before consummating a loan transaction should the APR reflected in the initial disclosure vary by more than an eighth of one percent (.125%).

A guaranteed quote, such as the one offered by Federal Title & Escrow Company, will ensure there are no surprises – or closing delays – at the end of a real estate transaction.

Don’t Let your Vacant Listing Go Third Class

Selling a property that the owner has already vacated? If the property is located in the District of Columbia, you will want to register the property as vacant with the city so that it can be exempt from paying additional property taxes.

The Real Property Classification Clarification Emergency Act of 2002 created a Class 3 property tax rate for vacant commercial and residential properties in the District of Columbia. Vacant property is taxed at $10.00 per $100 of assessed value – by comparison, a Class 1 residential property is taxed at $0.85 per $100 of assessed value!

Sellers who move out of a property before it is sold run the risk of having their property reclassified as vacant. The Department of Consumer and Regulatory Affairs (DCRA) inspects properties regularly to determine whether or not they are vacant. Individuals are also encouraged to report vacant properties to the DCRA. So a property that takes some time to sell and has already been vacated by the owners is particularly vulnerable to being reclassified.

Fortunately, by registering the property with the DCRA, an exemption does apply. A form needs to be completed with exemption category 5 checked and a small fee submitted. Also, supporting attachments must be submitted, such as the listing agreement with the realty agent contact information and documents showing ownership (either the Deed or HUD-1 Settlement Statement will typically suffice). The code allows for an exemption from Class 3 status for up to one year.

Here is the link to the form: (http://dcra.dc.gov/dcra/frames.asp?doc=/dcra/lib/dcra/2009_vacant_property_form_fillable.pdf)

Usually doing something first class costs you money, but in the District of Columbia, you want your property to receive the Class 1 treatment. So when vacating a listing, remember to register to get your Class 1 status – it will save a ton of money!

"AS-IS" IS "AS-IS" For Termites

[. . . All clauses in this Contract pertaining to Property condition, termites or compliance with city, state or county regulations are hereby deleted from this Contract. . . .] - AS-IS para. #3, Addendum of Clauses, GCAAR Regional Sales Contract

Yes, it means what it says. Read it, live it, and breathe it when you set out to present your next "As-Is" sales contract.

• It means that if the purchaser discovers infestation and structural damage resulting from wood destroying insects - tough luck - purchaser pays for the treatment and repairs.
• It means para.#16 of the Regional Sales Contract, "Termite Inspection" is DELETED - POOF! GONE!

Caveat: A seller cannot hang his/her hat on the "As-Is" clause if the seller intentionally or negligently misrepresented a material condition or fact; or if the seller fraudulently concealed a material condition or fact; or if the seller made a false promise of a character likely to influence, persuade, or induce.

Location Survey - WHY?

The GCAAR Regional Sales Contract makes only one reference to the survey and is found in para.#19 as follows: "The title report and survey, if required, will be ordered promptly . . . ." Note the key phrase "IF REQUIRED." What does that mean?

"IF REQUIRED" means if required by the purchaser's lender. Nearly all mortgage lender underwriting will require the title insurer to issue a lender's title insurance commitment without exception to survey matters. In other words, a lender will not accept a title insurance policy without coverage for survey matters.

Taking Advantage of your Tax Appeal

The decrease in home prices does have some advantages, one of which is the opportunity to challenge property tax assessments. Often I find myself seated at closing with a homebuyer who has purchased a property for far less than the county or city assessed value. While challenging a tax assessment after closing may not be the most exciting way to spend your time, it does have the potential to save you thousands of dollars.

In Maryland, if a property is purchased between January 1 and June 30, the new homeowner has 60 days from the settlement date to file an appeal. If the homeowner misses this 60 day window, there are two more options: an appeal within 45 days of receiving an assessment notice (typically every three years) or a “Petition for Review” by January 1 of any year. The initial review will take place at the Supervisor’s Level, which is typically an informal, 15 minute meeting. If the homeowner disagrees with the decision, an appeal can be made to the Property Tax Assessment Appeal Board. If still dissatisfied, a further appeal can be made to the Maryland Tax Court. Here is the link to the Maryland Department of Assessments and Taxation, http://www.dat.state.md.us/.

In the District of Columbia, an appeal must be filed within 30 days of the date of the assessment notice (taxes are assessed annually) and it must be received no later than April 1. A new owner may file a petition for administrative review. The initial appeal can be conducted in person, in writing, or by telephone. If the disputed assessment can not be resolved, the homeowner can appeal for a Board level review, and if the homeowner is still not satisfied, a final appeal can be made to the Superior Court of the District of Columbia. Here is the link to the DC Office of Tax and Revenue appeals page, http://otr.cfo.dc.gov/otr/cwp/view,a,1330,q,594359.asp.

You should be prepared to provide comparables or other data to prove that the property assessment is too high. When appealing after a purchase transaction, a HUD-1 Settlement Statement or an appraisal may be helpful. Every property owner is entitled to obtain, free of charge, their property worksheet and a sales list for the area where the property is located. Most importantly, during the appeal, focus on the points that specifically affect the property value – do not argue about percentage increases, past values, or values of properties in other jurisdictions

Don’t be intimidated by the tax appeal process; typically at the first appeal level you will meet one on one with an appraiser in a non-adversarial setting. Also, most appeals are resolved at the first appeal, especially if you have done your research, therefore appealing to a review board or the tax court is not generally needed. So use your right to Tax Appeal, it’s not as difficult as it seems and the reward will be worth it.

Power of Attorney Pitfalls

In my 18 years as a settlement attorney, I can point to an improper Power of Attorney (“POA”) form as one of the most common causes of a delayed closing. You have no doubt encountered clients who are too busy or physically unable to make it to closing. You’ve heard “My mom gave me Power of Attorney,” “I gave my husband Power of Attorney,” “Grandma is in the nursing home – I have Power of Attorney.” Simple enough – right? Wrong.

So often, clients find POA documents online or stationary stores. We are frequently presented with general “checklist” POA forms and clients are dismayed to learn that we cannot accept them for the purpose of insuring title. When it comes to conveying or encumbering real property by Power of Attorney, make sure your client has the proper legal authority well before the closing date.

Many states specifically address, by statute, the use of Power of Attorney and impose very specific requirements. Title insurance underwriters go beyond the state’s statutory requirements with even stricter guidelines for Power of Attorney usage. I think it’s helpful to first understand the definition of an “attorney.”

ATTORNEY: A person legally appointed by another to act as his or her agent in the transaction. . . . www.dictionary.com.

It’s also important to understand the two specific parties in the Power of Attorney. The PRINCIPAL is the person granting another the power to act in their stead; the one who signs the POA document. The ATTORNEY-IN-FACT is the receiver of the power from the Principal.

In order to satisfy most title insurers, a POA form to be used for the purpose of conveying or encumbering real property must meet the following requirements:

RECENT: The document needs to have been executed by the Principal within a year of the transaction at which it is being used. While exceptions are made on a case-by-case basis, it is rare that a title insurance underwriter will accept an aging POA because of risk of fraud or marketability issues.

SPECIFIC: The document must grant the Attorney-in-Fact the powers required to effect the transaction and should recite the specifics of that transaction (i.e., property address, convey or encumber). A document giving the Attorney-in-Fact the ability to “handle real estate transactions” is too vague and too general.

DURABLE: The document must state that the Power of Attorney will not terminate upon the disability of the Principal. It is not acceptable for the document to be entitled “Durable Power of Attorney” and not recite the above durability language specifically with the text.

ORIGINAL: The document must be an original. A copy of the POA is not acceptable. The POA must be recorded with the clerk’s office and the clerk requires original documents to be recorded.

To be absolutely certain that your client’s Power of Attorney is acceptable, please forward to our office for review prior to closing. If you would like to have sample POA forms recommended by our office, please feel free to contact us and we will gladly provide those forms.

Transparency in Title Charges

WHY AREN'T TITLE COMPANIES MORE TRANSPARENT?

On average, title charges (i.e., settlement or closing fee, title insurance) comprise 70% of the total variable closing costs*. Since title charges do vary significantly from title company-to-title company in DC, MD, VA, and FL, it is very important for a home buyer to comparison shop.

Ever wonder why most title companies force you to make contact with them in order to get a quote for title charges? Seriously, with today's technology, why won't your title company allow you to anonymously get a customized quote for their services so you can do some comparison shopping? Why do you have to contact them and wait for them to call or email you back with a quote?

Where is the demand from consumers on title companies? After all, mortgage lenders are soon to be required (by law - see http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm) to provide a Good Faith Estimate (GFE) that is subject to a "no tolerance" increase for originiation and lender costs. Shouldn't similar demands be placed on title companies?

Most title companies hope that the referring party sends the contract and/or title order and doesn't encourage the consumer to comparison shop for title services. In this instance, the consumer is a captive audience and will be charged accordingly. When the referring party does encourage the consumer to shop, most title companies force the consumer to call them or email them before they will provide a quote for services. They want to "feel you out" over the phone or via email to determine how hard you are shopping. If they sense a "hard" shopper, the price goes down; if they sense a "soft" shopper, the price may go up. In other words, their title charges are not consistent across the board and vary depending on how hard they have to try. Further, there is a belief among these same title companies that if they can just get you on the phone or make direct contact with you, they can "reel you in" and sell you on their service (even if the company's charges are above market). If you are like me, you really don't want to talk with anyone and have to haggle - JUST GIVE ME YOUR PRICE SO I CAN COMPARE AGAINST OTHERS!

Whether you are a "hard" shopper or a "soft" shopper, the charges are consistent and available online 24/7 at http://www.federaltitle.com/. You don't have to talk to us! We are so confident of our service and pricing, that we allow consumers to obtain, ANONYMOUSLY, a guaranteed quote for services using our QuickQuote https://www.federaltitle.com/titleagents/QuickQuote/Default.aspx feature. Give it a try and you will see that Federal Title & Escrow Company is the most transparent and consumer-friendly title company in the market.

*Accurately defined, "variable closing costs" are those non-recurring costs for which you can shop. Examples of variable closing costs include lender charges (i.e., appraisal fee, underwriting fee, tax service fee, flood certification, document preparation fee); title company charges (i.e., settlement or closing fee, title insurance premium); or ancillary services (i.e., location survey, property inspection, termite report, home warranty).

Items such as transfer taxes, recordation taxes, stamp tax, prepaid interest and escrow/reserves for taxes/insurance are not considered "closing costs" because these items do not vary among service providers and cannot be "shopped."

Going Green - Federal Title ditches paper copies for USB Flash Drive

Federal Title Goes Green
The average closing takes approximately 200 sheets of paper. There are loan documents, closing documents, title and deed documents, letters to buyers, letters to sellers, letters to lenders etc. By using a USB Flash Drive to store your (borrower's) documents, we can reduce this number by an average of 32%. Let's do a quick translation of what you are saving*:

• One tree provides 17 reams of paper (approximately)


• In an average month at Federal Title, we can save 15 reams of paper by using a USB Flash Drive


• In an average month at Federal Title, we can save almost THREE tons of water by using a USB Flash Drive


• The average cost of a wasted page is $0.06

So by using Federal Title & Escrow Company, you are helping the environment by saving trees, water and energy. We will provide a complimentary flash drive or can load the documents on a flash drive you provide. Rather have it on email? We offer that option as well.

What is a flash drive and who can use it?
It is a small memory stick that is placed in your computer's USB port, from there you open it and can see all of your closing documents. We convert your package to Adobe PDF for simple browsing. With this easy paper reducing process, you simply print out the papers you need and browse the others.

What are the advantages of having your closing documents on a USB Flash Drive?
You can easily:

• Email any of the documents as needed


• Print any of the documents as needed


• Browse your settlement documents


• Store 50-75 sheets of paper in an area the size of your thumb


• Add any other real estate documents to the Flash Drive so you have everything together

Federal Title clients already have an advantage of being tech savvy, you have ordered online, received an email copy of your closing costs and eliminated sending faxes back and forth. Take that savviness one step further by putting all of your closing documents on a USB Flash Drive - walk out of closing knowing you have saved trees, water, energy but most importantly, time.

*Information was calculated by referencing http://www.printgreener.com.

Closing Costs Explained Visually

Finally - our new video!!
We have been working on producing a video that explains closing and settlement costs, visually. Buying a house is a huge financial committment and one that should not be taken lightly. The number one question we get from buyers and borrowers is "How much is this going to cost?" While there is no easy way to answer this question, we have created a suite of tools to get buyers and borrowers started.

But this new video is the one we are most excited about, take a look and let us know what you think.

Transparent Title Companies - Where are they?

By Ann Herdon Eskew

WHAT IF YOUR PREFERRED TITLE COMPANY:

* Delivered an instant, online, guaranteed closing cost quote to you and your clients - specific to the transaction;
* Was independent and gave back part of its revenue to your home buyer; instead of giving money back to your broker through an Affiliated Business Arrangment;
* Allowed you to submit the transaction order entirely online.

Very few title companies offer a Web 2.0 experience when it comes to delivering service. In fact, most still cling to fax machines and land lines -- taking orders over the phone, quoting fees/costs over the phone. Further, many title companies have no room to significantly lower their fees to your client because they are kicking back 30% to 50% of the transaction revenue to a broker by way of an Affiliated Business Arrangment.

I am proud to say that my company, Federal Title, has remained independent for the last 13 years. We have grown to be the largest independent title company in the Washington, DC metro area. Our growth is directly attributed to our ability to deliver instant, online, and guaranteed closing cost quotes to agents, home buyers, and mortgage lenders. It is also attributed to our REAL Credit Program in which we give back part of our revenue to the home buyer rather than a referral source. The consumer loves transparency and savings and we deliver.

Federal Title enters Miami-Dade market

Federal Title & Escrow Company Enters Miami-Dade Market with Its "Guaranteed Closing Costs" and "Anti-Kickback" Business Model

Coral Gables, Fla., February 5, 2009 - Seeking to assure a more transparent settlement transaction that delivers a guaranteed quote for closing costs and directs a financial benefit to the home buyer instead of the referral source, Federal Title & Escrow Company introduces to the Miami-Dade market an unprecedented model that empowers the consumer. While many title companies share their revenue with real estate brokerages as a reward for the referral, Federal Title instead gives part of its revenue back to the consumer. The announcement comes on the heels and in the spirit of the U.S. Department of Housing and Urban Development's proposed rule to reform the Real Estate Settlement Procedures Act ("RESPA").

Federal Title's Market Entry

Federal Title & Escrow Company, an independent provider of real estate settlement services based in Washington, DC, proudly announces its expansion into the Miami-Dade market with the opening of its newest office in Coral Gables, FL.

The new Coral Gables office is part of the company's expansion plans to introduce its "guaranteed closing costs" and "anti-kickback" model in other markets. The model is supported by the company's proprietary online technology that delivers instant online closing costs specific to the consumer's transaction. The office will be managed by the law firm of Bales & Bales, P.A., a Coral Gables-based law practice.

Consumer-Friendly Business Model

In the majority of today's real estate transactions, real estate brokerages profit from title insurance premiums charged to home buyers or sellers by participating in joint ventures with title companies (also known as "Affiliated Business Arrangements"). Such arrangements require the participating title company to share its revenue with the real estate brokerage. Individual real estate agents are urged by their companies to refer home buyers and sellers to the joint venture title company in order that the brokerage may profit from the referral.

"For too long, at the expense of the consumer, title companies have been beholden to the financial interests of their referral sources. Legal and illegal kickbacks in the real estate transaction have fostered distrust with consumers and posed ethical dilemmas for real estate agents," said company president, Todd Ewing, adding that Federal Title does not share its revenues with referral sources. Instead, the company gives back part of its revenue to the home buyer through its innovative REAL Credit ProgramTM.

Attorney Amy Bales, manager of the Coral Gables office, added: "Our ability to deliver an instant, online, and guaranteed quote for closing costs along with substantial savings to the home buyer through our REAL Credit Program will give our agent and mortgage lender referral sources a distinct advantage over others. The Miami-Dade area real estate market is in dire need of a face-lift. Our real estate community needs to deliver more transparency to the consumer and raise the bar of ethics," said Bales.

About Federal Title & Escrow Company

Federal Title & Escrow Company (miami.federaltitle.com) (www.federaltitle.com) provides real estate settlement services for residential and commercial real estate transactions in Florida, Washington, DC, Maryland, and Virginia. Federal Title is committed to establishing long-term relationships with real estate agents and mortgage lenders who embrace transparency and high ethics.

Headquartered in Washington, DC, Federal Title is the largest independent title company in the Washington DC metro area. Through its proprietary and innovative AQGTM technology, Federal Title delivers online guaranteed closing cost quotes for the benefit of home buyers and referral sources. Through its REAL Credit ProgramTM, Federal Title gives back part of its revenue to the home buyer instead of referral sources.

# # #

TROUBLE BREWING; ESTATE TAX IN MD, DC AND VA

By: Jennifer Concino of Tobin, O'Connor, Ewing & Richard

With the average cost of a house rapidly rising in the DC Metropolitan area, it is especially important that homeowners recognize the need for tax and estate planning. Each and every homeowner should make sure that he has planned for his certain and eventual demise. For example, the estate of a resident of the District of Columbia with equity in a house of $1,500,000 could pay $64,400 in estate taxes to the District. Proper estate planning could help the homeowner defer, reduce or even potentially eliminate the tax.

The Federal Situation:
As you may already be aware, in 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) which, among other things, increased the federal estate tax applicable exclusion amount as follows:

Year -- APPLICABLE EXCLUSION AMOUNT
2006-2008 -- $2,000,000
2009 -- $3,500,000

EGTRRA eliminated the federal estate tax for individuals dying on or after January 1, 2010. However, unless between now and then, Congress and the President extend the law beyond December 31, 2010, or provide alternative tax relief, the estate tax as is existed in 2001, i.e. only a $1,000,000 applicable exclusion amount per person, will be reinstated on January 1, 2011, including a marginal rate of 55 percent.

Many of the documents drafted for our clients in the past include the establishment of a "by-pass trust" the funding of which is determined by a formula providing that the largest amount that can pass free of federal estate tax (the applicable exclusion amount) will fund such by-pass trust. By "forcing" the funding of a by-pass trust, each spouse is assured of utilizing his or her applicable exclusion amount thereby enabling each family to pass the largest amount possible of their estate to the next generation free of estate tax.

The States React:
Many states, facing deficits and losses in revenue as a result of EGTRRA, have taken action to prevent a similar increase in their exemption amounts for state death tax purposes. As such, the issue of "decoupling" has arisen. For example, even though the federal applicable exclusion amount is $2,000,000 this year, the State of Maryland and the District of Columbia have capped their exclusion amounts at $1,000,000.

Virginia has repealed its estate tax for individuals dying on or after July 1, 2007. Since many clients' estate planning documents include the forced by-pass trust formula, $2,000,000 (the federal applicable exclusion amount) would pass to the by-pass trust upon the death of the first spouse. This would result in no federal estate tax at the time of the first spouse's death, however, there would be a tax on the excess $1,000,000 in Maryland and the District of Columbia. The amount of that state death tax is pretty hefty; in 2007, the tax may be almost $85,000. For a death which occurs in 2009, where the federal applicable exclusion amount of $3,500,000 would pass to the by-pass trust (and Maryland and the District of Columbia continued to cap their exclusion amounts at $1,000,000) the state estate tax could be over a whopping $225,000! Maryland has, however, capped its estate tax to 16 percent of amounts over the $1,000,000 exclusion amount.

Our Response:
The current differences between the federal and state death taxes, as well as the differences among the local jurisdictions, require a case-by-case analysis for each client. For example, in some instances, it will be preferable to pay the state death tax assessed at the time of the first spouse's death by fully funding the by-pass trust with the federal applicable exclusion amount. Although this will accelerate the payment of state death taxes, the excess amount funded into the by-pass trust (i.e., $1,000,000 in 2007), including all appreciation thereon, will then be excluded from the surviving spouse's estate, thereby potentially sheltering significant wealth and saving federal tax at the top marginal estate tax rate which is 46 percent in 2007.

However, many clients may prefer to avoid the payment of state estate taxes upon the death of the first spouse and in such cases, it may be necessary to prepare new wills/revocable trusts. These new documents can provide that the by-pass trust will be funded with the lesser of the federal or state exclusion amounts. Another option provides that the entire estate would pass to the surviving spouse, subject, however, to the surviving spouse having a power to "disclaim" a portion of the bequest into the by-pass trust. This option would allow maximum flexibility on a post-mortem basis to the ever evolving estate tax landscape. Alternatively, the entire estate of the first spouse to die may be paid over to a marital trust for the benefit of the surviving spouse. In such case, the personal representative may determine after the death of the first spouse not to elect "marital deduction" treatment for any portion of the marital trust (the state estate tax exclusion amount or the federal estate tax exclusion amount).

Make an Appointment:
We recommend that each of our clients have their existing estate planning documents reviewed as soon as possible. Please contact us (202-362-5900) to arrange a time to discuss your documents and what changes, if any, are appropriate for your needs.

FIRPTA - How to protect your buyer

By: Joseph Gentile

What is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA), 26 U.S.C. § 1445, provides that a buyer must withhold 10 percent of the amount realized by the foreign seller in the sale of an interest in U.S. real property. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax.

My seller is a resident alien, does that mean FIRPTA applies?
A resident alien, for purposes of FIRPTA, is not a foreign person. FIRPTA defines a foreign seller as a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. There are two ways to determine if a person qualifies as a resident alien under FIRPTA: 1) if a person has been issued an alien registration card ("green card") or 2) the substantial presence test that requires a person be physically present in the United States for a certain number of days a year. 183 days (pursuant to IRS Code).

My seller does not have a green card. What qualifies under the substantial presence test?
The short answer is that if your seller was physically present in the United States for at least 183 days in the previous calendar year, he or she qualifies as a resident alien and is not subject to FIRPTA withholding. Even if the seller does not meet this requirement, he or she might still be exempt from FIRPTA, by using the complicated formula found in IRS Code § 7701 that states that a seller qualifies as a resident alien if:

* the seller was present in the United States on at least 31 days during the calendar year, and
* (the number of days present in current year) + (the number of days present in preceding year x 1/3) + (the number of days present in 2nd preceding year x 1/6) equals or is greater than 183.

How do you determine the amount realized for FIRPTA?
The amount realized typically is the sales or contract price. Please note that the outstanding amount of any liability assumed by the buyer does not reduce the amount realized. If the property is owned jointly by foreign and non-foreign persons, the amount realized is to be allocated among the owner based on capital contributions, with spouses treated as having contributed 50% each. Generally, the amount to withhold is 10% of the amount realized, unless the seller is a corporation, partnership, trust, or estate in which case the amount may be 35%.

I am buying a house from a foreign person as defined by FIRPTA, what do I need to do now?
The buyer must use IRS Forms 8288 (www.irs.gov/pub/irs-pdf/f8288.pdf) and 8288-A (www.irs.gov/pub/irs-pdf/f8288a.pdf) to report and pay to the IRS any tax withheld on the purchase of U.S. real property interests. Generally, these forms need to filed with the IRS within 20 days of the date of transfer, defined as the date consideration is first paid, excluding earnest money or deposits. Failure of the buyer to withhold the proper amount may cause the buyer to be liable for the payment of the tax plus penalties and interest as well as possibly making the buyer subject to criminal penalties.

Even though the seller is a foreign national, are there any exceptions to the withholding?
Several exceptions do apply and exempt the buyer from withholding. Here is a partial list of the most common exceptions in a real property transfer:

* The property is purchased for $300,000.00 or less and is to be used by the buyer as his or her residence. The test for a residence is if the buyer is to reside in the property for at least 50% of the days in the next two 12 month periods.
* The seller provides to the buyer a Non-Foreign Status Certification containing the transferor's U.S. taxpayer identification number and stating that the transferor is not a foreign person. The buyer need not investigate the validity of the certification, but will be held liable if he or she has actual knowledge that it is false.
* The seller provides to the buyer a withholding certificate from the IRS that excuses or lowers the withholding amount.
* No consideration is paid (for example the property was transferred as a gift).
* An option to acquire real property is signed (however, withholding is required on the sale when the option is exercised).
* The purchaser is the United States, a U.S. state or possession or political subdivision, or the District of Columbia.
* The seller provides a notice signed under penalties of perjury stating that the seller is not required to recognize gain or loss on the transfer because of a nonrecognition provision of the Internal Revenue Code or a provision in a U.S. tax treaty.

Where can I get more information on FIRPTA?
We would be glad to answer any questions that you might have on FIRPTA, but additional information, applicable forms, the withholding certificate application process, and more, can be found at www.irs.gov.