Buying from an international seller?

[IsDVCForMe?]

In any way, it makes a lot of sense going with a title company that has significant experience with this type of transaction.

In the hypothetical scenario that the title company does not properly withhold the 15%, yes, there would be hardship for the buyer. But this risk, small as it is, can be further reduced by the buyer (e.g. check the statements, did they withhold the money). But for the international seller it's not hypothetical: they usually have to spend quite a bit of money to get those missing 15% back (paying someone to file for a withholding certificate, extra costs for FIRPTA filing).

In a transaction involving an international seller, I'd be expecting delays in getting the contract notarized. Depending on where they are living, notarization can be a much more difficult and expensive process than in the US. But I would not expect any problems with FIRPTA, if the title company is competent.

I understand your logic. But as a seller, nobody has to buy your contract.

With this added level of complexity, people are going to submit lower offers. The buyer is still taking a risk. And with a risk, people will try to minimize it. And minimizing it would be offering 85% of the price you would typically pay to have that extra 15% in case it’s needed for the IRS. I didn’t do that, but I would moving forward if I decided to even buy from an international seller again.

And as you can see, other people wouldn’t. So that reduces the number of buyers, which reduces the number of offers.

In the scenarios below both contracts are comparable:

Scenario 1- buy from a seller with no risks.

Scenario 2 - buy from a seller with the risk that you may owe 15% of the sale to the IRS.

Which scenario do you think most of the people will choose? The only people choosing scenario 2 are going to be people submitting lower offers to minimize that risk or people who didn’t know.

 

[walt34]

I understand your logic. But as a seller, nobody has to buy your contract.

With this added level of complexity, people are going to submit lower offers. The buyer is still taking a risk. And with a risk, people will try to minimize it. And minimizing it would be offering 85% of the price you would typically pay to have that extra 15% in case it’s needed for the IRS. I didn’t do that, but I would moving forward if I decided to even buy from an international seller again.

And as you can see, other people wouldn’t. So that reduces the number of buyers, which reduces the number of offers.

In the scenarios below both contracts are comparable:

Scenario 1- buy from a seller with no risks.

Scenario 2 - buy from a seller with the risk that you may owe 15% of the sale to the IRS.

Which scenario do you think most of the people will choose? The only people choosing scenario 2 are going to be people submitting lower offers to minimize that risk or people who didn’t know.

But you only owe 15% to the IRS if the title company didn't withhold it (e.g. they ran off with it, instead of sending it to the IRS). You want an extra 15% for just this scenario. You do you but other potential buyers won't feel this is necessary.

 

[Moonspinner]

It's the buyer's responsibility to withhold 15% and send it to the IRS and the title company typically handles this for the buyer. It's not up to the foreign seller to pay or not pay the tax. The seller can then claim it back.
You'd only be on the hook as the buyer if the title company messes this up.

Yes, this is how it should go. The problem, however, is that there is no contractual guarantee. In the contract, the title company is not held liable for the 15%. The buyer is held liable while still being forced to pay the money to the seller. We offered to hold the money ourselves and pay the tax, but the title company said no because the tax is technically the responsibility of the international seller. It is also because of this that the title company provides no guarantee that they will actually hold the funds or pay the IRS. It’s done as a kind of courtesy. It is done this way because it is a grey area.

I think it is important to remember that the villain in this scenario is the US government. It is the US government that has decided to insert itself in a private transaction. It is the US government that goes after the buyer for the seller’s tax! Unbelievable, really. Why the US government feels like it has a right to take money from people every time they engage in any activity is frankly disgusting. It is the US government that imposes this problem upon international DVC members. US buyers just deal with the reality of the situation. And if you have a spouse who reads every detail of every contract, you don’t want to hear about it so you make sure you stay away from international contracts lol. Apparently Disney has decided it’s not worth it either which I find very interesting.

One more comment, it is the buyer who picks the title company. Most brokers won’t tell you this and will act like the choice of the title company is a fait accompli, but by law the buyer picks. Many brokers get kickbacks or have relationships with certain title companies and that’s why they use those companies. The job of the title company however is mostly to protect the buyer. Part of our problem with our international seller transaction is that we did not pick our title company and did not like the one assigned to us. For every other resale we have picked our title company. I’m not sure why I missed it, but I was distracted and forgot to insist upon Jeffrey Sweet. We also did not know the seller was international until we were already in the process, so mentally we were not prepared. I think if you just go through the process and sign without reading you are better off lol. I think in 99% of cases you will be fine.

 

[Moonspinner]

But you only owe 15% to the IRS if the title company didn't withhold it (e.g. they ran off with it, instead of sending it to the IRS). You want an extra 15% for just this scenario. You do you but other potential buyers won't feel this is necessary.

I don’t think anyone is saying they would literally take an extra 15% off a contract, but risk usually is built into the bid unconsciously regardless. Whenever we bid on resale now, we ask if it is international first, so we just exclude international. However, I suspect that most people who consciously pick international are doing it because it’s a deal or has something they specifically need. The risk has to be offset somehow.

 

[airjay75]

Let's also not forget that those of us on the boards are some of the more informed DVC purchasers out there, and there are plenty of purchasers out there who would have no idea that buying from an international seller would entail these extra layers of administrative hassle.

I will also note that FIRPTA is merely a withholding mechanism to collect potential taxes. For most international sellers, even if the 15% is withheld and paid to the IRS, they have the option of filing a US tax return to reclaim some or all of that - if they had no actual gain on their sale (which I imagine is the case for most DVC sellers), they had no tax liability and they can get all of that 15% withheld back. FIRPTA exists because gain on the sale of U.S. real estate is subject to U.S. capital gains taxes and the U.S. government otherwise has no ability to enforce this - they can't rely on the good faith of a non-U.S. citizen to pay taxes they owe so they have to impose a withholding requirement on the person making payment to the international seller (i.e., the buyer). This is very common in dealing with cross-border transactions in all countries.

I haven't been through the process, but I might be inclined to insist, before wiring any money to the title company that one of three things is occurring. One, 15% is being withheld and promptly paid to the IRS at closing. Two, the seller has obtained a withholding exemption and a copy has been provided to me. Or, three, if the title company is going to hold the amounts in escrow while the seller attempts to obtain a withholding exemption, that the title company will indemnify and hold me, the buyer, harmless, for any amounts that are not properly paid to the IRS - if the title company is verifying the veracity of the withholding exemption, they should be on the hook. Otherwise, I'd say, I'm happy to wait to close until one of those three things are true.

Of course, how much I cared might depend on the size of the purchase too.

 

[walt34]

Yes, this is how it should go. The problem, however, is that there is no contractual guarantee. In the contract, the title company is not held liable for the 15%. The buyer is held liable while still being forced to pay the money to the seller. We offered to hold the money ourselves and pay the tax, but the title company said no because the tax is technically the responsibility of the international seller.

This doesn't sound correct. It's the buyer's responsibility, so you should be able to do it yourself (but it involves the transfer and filing forms). If the title company does it, they do it for you as the buyer. It is not the responsibility of the seller.

It is also because of this that the title company provides no guarantee that they will actually hold the funds or pay the IRS. It’s done as a kind of courtesy. It is done this way because it is a grey area.

But they do it for you as the buyer. I can't see how they can ask you to wire the full amount without assuring you that they will withhold the 15%.

 

[Moonspinner]

Let's also not forget that those of us on the boards are some of the more informed DVC purchasers out there, and there are plenty of purchasers out there who would have no idea that buying from an international seller would entail these extra layers of administrative hassle.

I will also note that FIRPTA is merely a withholding mechanism to collect potential taxes. For most international sellers, even if the 15% is withheld and paid to the IRS, they have the option of filing a US tax return to reclaim some or all of that - if they had no actual gain on their sale (which I imagine is the case for most DVC sellers), they had no tax liability and they can get all of that 15% withheld back. FIRPTA exists because gain on the sale of U.S. real estate is subject to U.S. capital gains taxes and the U.S. government otherwise has no ability to enforce this - they can't rely on the good faith of a non-U.S. citizen to pay taxes they owe so they have to impose a withholding requirement on the person making payment to the international seller (i.e., the buyer). This is very common in dealing with cross-border transactions in all countries.

I haven't been through the process, but I might be inclined to insist, before wiring any money to the title company that one of three things is occurring. One, 15% is being withheld and promptly paid to the IRS at closing. Two, the seller has obtained a withholding exemption and a copy has been provided to me. Or, three, if the title company is going to hold the amounts in escrow while the seller attempts to obtain a withholding exemption, that the title company will indemnify and hold me, the buyer, harmless, for any amounts that are not properly paid to the IRS - if the title company is verifying the veracity of the withholding exemption, they should be on the hook. Otherwise, I'd say, I'm happy to wait to close until one of those three things are true.

Of course, how much I cared might depend on the size of the purchase too.

This is great advice, but unfortunately the title company will not do those things for you. We went back and fourth for a couple of months on your #1 and #3 asks. We did not ask for your #2 about the seller providing a withholding exemption. The title company will not indemnify you, which we found hilarious. This was a sticking point for us, we didn’t want to let it go, but in the end we just decided to throw caution to the wind. But we won’t buy international again.

And our title company was one of the “good” ones, but we won’t use them again either.

I also want to point out that regardless of what the US government finds par for the course, I do not agree that they should be involved in taxing our every move. Enough, is how I feel about that.

 

[Moonspinner]

This doesn't sound correct. It's the buyer's responsibility, so you should be able to do it yourself (but it involves the transfer and filing forms). If the title company does it, they do it for you as the buyer. It is not the responsibility of the seller.


But they do it for you as the buyer. I can't see how they can ask you to wire the full amount without assuring you that they will withhold the 15%.

This doesn't sound correct. It's the buyer's responsibility, so you should be able to do it yourself (but it involves the transfer and filing forms). If the title company does it, they do it for you as the buyer. It is not the responsibility of the seller.


But they do it for you as the buyer. I can't see how they can ask you to wire the full amount without assuring you that they will withhold the 15%.

It actually is the seller’s responsibility. The tax is on the seller’s proceeds.

It is shocking, I agree.

 

[airjay75]

This is great advice, but unfortunately the title company will not do those things for you. We went back and fourth for a couple of months on your #1 and #3 asks. We did not ask for your #2 about the seller providing a withholding exemption. The title company will not indemnify you, which we found hilarious. This was a sticking point for us, we didn’t want to let it go, but in the end we just decided to throw caution to the wind. But we won’t buy international again.

That's interesting. So, did they say what the plan was? Were they planning to withhold and pay 15% to the IRS or give the seller some time to provide a withholding exemption? Just curious how they actually handled it.

 

[walt34]

It actually is the seller’s responsibility. The tax is on the seller’s proceeds.

It is shocking, I agree.

No, FIRPTA withholding is like a security deposit. It's the buyer's responsibility. The seller can then file a tax return and claim a refund (or get a withholding certificate to avoid the money going to the IRS in the first place).

ETA: In general I believe it's a good thing that a foreigner can't avoid taxes if there is an increase in value. It's just a bit cumbersome for timeshare where there is rarely a noteworthy increase in value.

 

[Moonspinner]

That's interesting. So, did they say what the plan was? Were they planning to withhold and pay 15% to the IRS or give the seller some time to provide a withholding exemption? Just curious how they actually handled it.

I am not sure about this. I just pulled up the emails through search and there are several over what looks like a two month period. This was 4 years ago. I will go back and look at them because I want to give you accurate information. I agree it is interesting. I believe they withheld with the idea of giving the money to the seller, as you said very often there ends up being no tax. I’m pretty sure they told us the title company doesn’t actually pay the IRS. But let me look at the emails.

 

[walt34]

I am not sure about this. I just pulled up the emails through search and there are several over what looks like a two month period. This was 4 years ago. I will go back and look at them because I want to give you accurate information. I agree it is interesting. I believe they withheld with the idea of giving the money to the seller, as you said very often there ends up being no tax. I’m pretty sure they told us the title company doesn’t actually pay the IRS. But let me look at the emails.

This does sound like the process with an application for a withholding certificate (as the seller was probably selling below purchase price). It's still interesting why they wouldn't have given you assurances that the money won't be released to the seller unless the IRS issues the certificate.

 

[Moonspinner]

That's interesting. So, did they say what the plan was? Were they planning to withhold and pay 15% to the IRS or give the seller some time to provide a withholding exemption? Just curious how they actually handled it.

I just reread some of the emails. The title co does send the money to the IRS, but they would not put it in the contract. They told us in the email that they would, but they refused to add it to the contract. Apparently, we also asked to have tax form 8288 in our closing documents and they would not do it.

 

[airjay75]

I just reread some of the emails. The title co does send the money to the IRS, but they would not put it in the contract. They told us in the email that they would, but they refused to add it to the contract. Apparently, we also asked to have tax form 8288 in our closing documents and they would not do it.

Interesting. I suppose an e-mail is better than nothing. Did they provide you anything later as evidence that they paid the money to the IRS?

 

[Moonspinner]

This does sound like the process with an application for a withholding certificate (as the seller was probably selling below purchase price). It's still interesting why they wouldn't have given you assurances that the money won't be released to the seller unless the IRS issues the certificate.

From the emails I think we did feel like they were not actually sending the money to the IRS and that they were instead giving it to the seller. There was no discussion or mention of a withholding certificate but you’re probably right that was what was going on. The title company just responded 3xs saying they were going to send the money to the IRS… but then they wouldn’t put it into the contract. We just hated the entire process.

 

[walt34]

From the emails I think we did feel like they were not actually sending the money to the IRS and that they were instead giving it to the seller. There was no discussion or mention of a withholding certificate but you’re probably right that was what was going on. The title company just responded 3xs saying they were going to send the money to the IRS… but then they wouldn’t put it into the contract. We just hated the entire process.

Doesn't sound like good work from the title company. I'd avoid them in the future, too.

 

[IsDVCForMe?]

But you only owe 15% to the IRS if the title company didn't withhold it (e.g. they ran off with it, instead of sending it to the IRS). You want an extra 15% for just this scenario. You do you but other potential buyers won't feel this is necessary.

But you only owe 15% of $20k, that’s it! That’s a lot for anyone.

What scenario are you picking if price per point is comparable, #1 or #2?

 

[airjay75]

Doesn't sound like good work from the title company. I'd avoid them in the future, too.

Maybe a good reason to have some conversations with a few different title companies before making offers on international contracts to see how they handle it. And, then insist on using your preferred title company after an offer is accepted (although I believe that is quite difficult to do with the site sponsor).

 

[Moonspinner]

Interesting. I suppose an e-mail is better than nothing. Did they provide you anything later as evidence that they paid the money to the IRS?

I just double checked— no. All they sent us was the title policy. Once we signed the final paperwork and wired them the money, that was it. We also never heard from the IRS. Our takeaway was just that there are no guarantees with an international seller. Maybe we just had a bad experience. I do think the risk is very low that anything will go wrong. And it’s not usually large amounts of money on the table. Still, annoying. And wild that Disney doesn’t want to buy from international sellers.

 

[VGCgroupie]

I didnt read all of the above. I will just leave my final thoughts. I am a stressed person by nature. International contracts have to be rare or deeply discounted for me to even consider it. While yes the title company is supposed to withhold the money, things happen, and I have in fact had a title company lose documents on a resale purchase. A reputable title company that I had used in the past. I dont need or want extra stress to be contacted by the IRS and then having to contact title to and prove its been paid. Absolutely not worth paying the market price for an average contract. Sorry if that offends international sellers.