Purchasing Resale from Foreign Sellers - Concerns?

[NewDVCaddict]

I posted this under another thread, but it was titled 'Canadian Owners' and thought starting a new thread not specific to Canada might offer some different perspectives....

My husband and I are in the process of purchasing our first resale and our sellers are from Canada. Just got "Buyer Open Escrow With Foreign Seller" documents where my husband and I have to provide our Social Security Numbers. The document says "You are purchasing this property from a foreign seller. The SELLER will be charged a 10% FIRPTA tax on this sale. By law, YOU (the buyers) are responsible for remittance of that payment to the IRS when buying from a foreign seller. We (Magic Vacation Title, LLC) gladly handle this for you at closing. We (Magic Vacation Title, LLC) will submit all tax forms on your behalf. In order to do so, we must report this under your social security numbers".

So, my questions, other than some additional forms at closing, does anyone know if I will get 1099s or anything else later on that will impact reportable income on my taxes (that I wouldn't have had if we were buying from a non-foreign seller?) Does purchasing from foreign sellers increase the time to complete the resale process? Any impacts on closing costs for the BUYER? Anything else we should be aware of purchasing from a 'foreign seller'? Many Thanks in Advance!

 

[DisneyfromDeland]

I am about to return contract documents on a contract with a foreign seller as well. The agent was up front and let me know before I placed the offer that the sellers were from the UK and that there could be delays. She explained that the sellers need to have the closing documents notarized at a US Embassy, so sometimes it takes a while to get to one depending on where the sellers live. I did notice the 10% FIRPTA fee for the sellers in the contract language as well. I'm curious to see other replies.

 

[CMNJ]

I posted this under another thread, but it was titled 'Canadian Owners' and thought starting a new thread not specific to Canada might offer some different perspectives....

My husband and I are in the process of purchasing our first resale and our sellers are from Canada. Just got "Buyer Open Escrow With Foreign Seller" documents where my husband and I have to provide our Social Security Numbers. The document says "You are purchasing this property from a foreign seller. The SELLER will be charged a 10% FIRPTA tax on this sale. By law, YOU (the buyers) are responsible for remittance of that payment to the IRS when buying from a foreign seller. We (Magic Vacation Title, LLC) gladly handle this for you at closing. We (Magic Vacation Title, LLC) will submit all tax forms on your behalf. In order to do so, we must report this under your social security numbers".

So, my questions, other than some additional forms at closing, does anyone know if I will get 1099s or anything else later on that will impact reportable income on my taxes (that I wouldn't have had if we were buying from a non-foreign seller?) Does purchasing from foreign sellers increase the time to complete the resale process? Any impacts on closing costs for the BUYER? Anything else we should be aware of purchasing from a 'foreign seller'? Many Thanks in Advance!

We were looking at a foreign contract a few months back (Australian seller) and decided not proceed for a few reasons. One we wanted to ensure we would close as quickly as possible and though it can be done quickly if your seller is extremely motivated it can also drag out if they aren't as they cannot sign and email/fax contracts back-they must get everything notarized and as the other poster sometimes that involves going to a US embassy which could be far from where they live. Then they have to ship the documents to the closing company (rather than fax/email). As your seller is Canadian I would guess they'd be able to return the documents more quickly (assuming they can get them notarized quickly) than our potential Australian seller. Second we were not comfortable having to give out our social security numbers simply to buy a timeshare (as it is not required with a U.S. seller).
I am not aware of any increased closing costs to the buyer.
I don't think it would impact your tax status as it is not income for you that is being reported. Basically the 10% tax being withheld from the seller's proceeds. They can then file for a refund of the tax with the IRS in order to get the 10% back if they choose to do so (and must obtain a tax identification number to do so).
I talked to the owner of another closing company (not magic title) who explained the whole process to me. She basically indicated that the biggest potential issue with a foreign reseller is that it can (in some cases) take a lot longer to close and required a little more paperwork. I was more comfortable with the process after talking to her but the seller/broker were requiring we use their preferred closing agency (Magic Title) and so we decided there were just too many strikes against the foreign seller contract (at least for us). So we went with a U.S. seller instead (hopefully closing any day now

 

[drusba]

FIRPTA requires the foreign seller to pay taxes on any capital gains arising from the sale of property in the US, and, to assure they are paid, 10% the sale proceeds are withheld at the time of closing. That is usually (and for a timeshare highly likely to be) an amount that greatly exceeds any capital gains taxes that the seller may actually owe, but following the sale, the foreign seller is then required to file forms with the IRS showing what the capital gain, if any, actually was and seeking a refund above any amounts actually owed. The law actually makes it the purchaser's responsibility to withhold the 10% at time of closing and submit forms to the IRS with the 10% withheld. Having done that, the purchaser really has nothing left to do and will not get anything like a 1099. What happens in practice is that the closing company (Magic Vacation Title in your case and any of the title companies that do closings know of and can handle the process) withholds the amount and submits the forms that you fill out before closing along with the 10% amount. What actually happens is often an allowable process where the seller provides the IRS with the details of the sale and gains and the title company sends the actual amount of taxes owed while the remaining portion of the 10% is held in an escrow account set up by the title company. The IRS then reviews the submission and if it agrees, issues a release that allows the escrow agent to turn over the remaining money to the seller. It should not really mean that closing should be extended or take longer than normal except that a lot of foreign purchasers are sometimes surprised when they learn of the withholding and what they have to do to get it back and the process may slow down a little as a result.

 

[jnamadison]

We just closed on a deal with a foreign seller (Argentina). For us, it did add some time to the process. When we first made the offer, it took an extra day because the contract needed to be translated for the seller. Our biggest setback (and one that should be more or less unique to our situation) was the need for the seller to have the closing documents notarized at an embassy. Unfortunately, we received our documents on Dec 18th, and the embassy in Buenos Aires was closed for notarization for the two weeks surrounding the holidays. Once they re-opened, the seller wasn't able to get an appointment until the 12th of Jan. That along with the time to Fed-ex the documents and verify everything had us closing on the 27th (Our original close-by date was Jan 15th). Our broker told us about the potential delays beforehand and kept us informed with the progress and/or delays. We had been hoping it would be completed by now (still waiting for membership number) but in the end, if it's the right contract, what's an extra 2 or 3 weeks?

 

[a742246]

I bought a contract from a foreign seller. Add about 4 weeks to the sale. Also, make sure you get title insurance on this, they will handle any problems if something comes about.

 

[bellapecas]

If you're going to purchase from a foreign seller, Magic Vacation Title is the company to use. From what I've read, they are the only ones who protect the buyer's interest by making the seller obtain a federal tax ID. That being said, I had a contract with foreign sellers last year and I wouldn't do it again.

 

[NewDVCaddict]

Thanks to all for the feedback. I greatly appreciate it and feel much more at ease. We have completed our 'Escrow with Foreign Sellers' document and are moving forward. It is certainly the right contract and the right time for our family, so we feel a little extra time to close is worth it for us. BLT for an August UY within the range of points we were interested in has been hard to come by, and when it is - it sells QUICKLY, typically within a day or so of being posted. I was thrilled to find this one and we are now 9 days into ROFR and excited to have started the process for our first add-on. Hope we get this one....I am already mentally making reservations with the additional points!

 

[bellapecas]

Good luck! I just sent in my closing docs and check for my 2nd BLT contract.

 

[NewDVCaddict]

Good luck! I just sent in my closing docs and check for my 2nd BLT contract.

Congrats to you too! We bought BLT direct in 2010, so hopefully this will be our 2nd BLT contract as well!