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Buyer’s Should Not Expose Themselves to FIRPTA Liability
By Robert Nagle
Published:
9/20/2011
 

 
 
 

Buyer’s Should Not Expose Themselves to FIRPTA Liability

 
By: Robert Nagle

 

The latest form of Residential Purchase Agreement being used in Arizona has some problems that may need to be remedied when the next version is released. A critical issue recently brought to my attention (and which further illustrates the importance of having a residential real estate attorney involved on a buyer’s behalf) involves the handling of the form of affidavit sellers are required to deliver at closing pursuant to the Foreign Investment in Real Property Tax Act, commonly known as FIRPTA. If furnished with the affidavit stating that the seller is not a foreign person, the buyer is exempt from the 10% withholding requirement of FIRPTA.

 

Lines 130 through 133 of the Residential Purchase Agreement require that the seller deliver the FIRPTA affidavit to the escrow agent, and, further, that absent such delivery, buyer must withhold ten percent (10%) of the purchase price. If buyer is required to withhold but fails to do so, the buyer is at risk of having to pay such amount to the IRS.

The problem is the purchase agreement requires the affidavit be delivered to the escrow agent, not to the buyer as required by FIRPTA. In a recent transaction where I represented the buyer, the escrow agent required my client to sign a release from any liability with respect to FIRPTA; therefore, I asked that the original certificate be delivered to my client. The escrow agent refused, stating that he would do so after removing the sellers’ social security numbers. I responded that this would not be sufficient, since my clients would still be relying on the escrow agent’s implied representation that there were social security numbers on the original.

 

Was there a real concern that the sellers were foreigners? Frankly, I don’t think anyone had given the issue any thought and, in a majority of transactions, the sellers are American citizens and there are no issues. But since the law’s requirements are so clear and fulfilling the requirements are so simple, why should any buyer accept such risk while simultaneously relieving from liability a party they are truly relying on?

This is but one of many issues for buyers in the new purchase agreement form. Sellers and buyers are both left “dangling” when they sign the current form of Residential Purchase Agreement, a document that contains hidden pitfalls for each side of the transaction. Prior to the market downturn attorneys were rarely involved in residential transactions, but now more than ever, sellers and buyers in Arizona need to have an attorney review real estate transactions. Like the FIRPTA issue, many of the changes to the Residential Purchase Agreement are puzzling and inconsistent, but the concerns of brokers and clients can be relieved by having an experienced lawyer review the paperwork.

 

Nagle Law Group’s experienced residential real estate team has been practicing real estate law for over 20 years. Robert Nagle is a partner with Nagle Law Group, focusing on residential transactional matters, and can be reached at 602-595-3156 or robert.nagle@naglelaw.com. 

 

  
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