If you find a foreign buyer for your property, you may be concerned that selling to a non-U.S. citizen might complicate the closing process. Will additional paperwork be required? Will there be problems with clearing the buyer’s funds? Are there unusual challenges if the potential buyer intends to obtain a mortgage?
What steps can you take — as the seller — to prevent a delay?
Dan Forsman, one of the charter members of the International Multiple Listing Service and chief executive of Berkshire Hathaway Home Services Georgia Properties, advises sellers with foreign buyers to “prepare for the unexpected.” According to Forsman — who oversees 1,400 agents and promotes the marketing of properties worldwide — “international clients often negotiate a deal differently based on their culture or tradition. While buyers from one country may be accustomed to negotiate right up to closing, another group may take a more personal or emotional viewpoint and accept the sales price with little or no haggling.”
Different rules can apply to foreigners when they apply for a mortgage. Since verification of international credit and assets may be difficult, lenders often require a larger down payment or a guaranteed amount to be deposited in a U.S. bank as proof of the client’s ability to repay the loan.
What’s required for a foreigner to get a home loan can depend on residency status. Most international borrowers tend to be permanent residents (with a green card), nonpermanent residents (with a valid work visa), or “foreign nationals” (whose primary residence is outside the United States). For tax purposes, foreign buyers will need to obtain an ITIN (individual taxpayer identification number) if they do not qualify for a Social Security number.
According to the National Association of Realtors (NAR), about 209,000 houses were sold to resident and nonresident foreigners between April 2014 and March 2015. Foreign buyers spent more than $100 billion on U.S. homes, and realty agents who dealt with international clients reported an increase of 7 percent from last year.
“International transactions are significantly different and more complex than domestic deals,” according to the NAR’s Web site, http://www.realtor.org, “and working with a Realtor who knows how to handle these differences can make or break the purchase or sale.”
“Pick the best team you can,” said Anthony Hitt, chief operating officer for the North American franchise of Engel & Völkers, an international brokerage based in Hamburg, Germany. “Sellers are wise to look for agents who are trained in the legalities and cultural traditions that come with a foreign buyer.”
William Marquess, a certified international property specialistwith Coldwell Banker in Easton, Md., said clients often come to him with a list of potential properties in mind. They may have a limited time to spend in the United States and may need to make a decision quickly. He estimates that 60 percent of his foreign sales are cash transactions and that the remaining 40 percent are to buyers who apply for a mortgage.
Foreign buyers will be subject to the same rules as U.S. citizens, but unusual factors — such as overseas currency transfers, nonstandard purchase agreements, and identity and credit verification — can complicate a sale unless carefully prepared for ahead of time. Consider these complications, which are often involved in an international property sale:
●A nonstandard purchase agreement that may not contain all the provisions that a board-certified or NAR contract contains, such as a mandatory agreement to mediate in the event of a dispute.
●Verification of the buyer’s identity and status.
●Clearance of international funds brought into the United States, especially amounts over $10,000.
●Provision for an out-of-town buyer of a valid power of attorney form or approval for electronic signatures.
●A request from the buyer for additional time to take advantage of a favorable currency conversion rate; for time to travel from overseas; or for time to process a foreign mortgage application that may involve added documentation to prove creditworthiness and confirm international assets.
In the event of a buyer’s default on a sales contract, sellers are entitled — under certain circumstances — to monetary compensation. Because it could prove difficult to take legal action against a foreign buyer — who may be out of the country or difficult to contact — sellers should consider asking for a sizable down payment or “good faith money deposit” to guarantee the sale.
If a buyer has no legitimate reason for canceling the sale — and backs out — the seller will usually be allowed to keep the deposit instead of resorting to legal action. Litigation can be expensive and a judgment can be hard to enforce when dealing across international borders.
Tips for sellers when the buyer is a foreigner:
• Insist on a sales agreement that provides protection in the event of a default. Have the sales agreement reviewed by a trained professional agent or real estate lawyer.
• Set a reasonable closing date to accommodate money transfers, out-of-town buyers, last-minute inspections or negotiations, and the processing of a foreign borrower mortgage.
• Be sensitive to cultural and traditional differences when working with a foreign buyer and try to choose a team experienced in negotiating and working with international clients.
• Wire transfers, digital signatures and out-of-town buyers have become more commonplace, and with proper representation, sellers should be able to close with no added inconvenience.
Sellers may not be aware of the new “know before you owe” mortgage rule. Mortgage applications made after Oct. 3, must comply with the TILA-RESPA (Truth in Lending Act-Real Estate Settlement Procedures Act) Integrated Disclosure rule (TRID) that requires lenders to provide buyers — domestic or foreign — loan documents three days in advance of the closing.
If the terms of the mortgage change during the three-day review period, the TRID rule states that the documents must be redrawn and the clock reset with another three-day delay. Full explanation of the law can be found at www.consumerfinance.gov/regulatory-implementation/tila-respa/
Robert J Russell – International Real Estate Specialist