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Title Insurance for Foreign and International Investors
Florida’s stable economy, world winning beaches and variety of attractions make it an ideal place for Foreign Investors to purchase residential or commercial real estate for their own enjoyment or as a way to diversify their investments.
When a foreign investor makes the decision to purchase real estate in the United States (U.S.) it is imperative that they consult with local industry professionals. The theory and practice of real estate is considerably different here than abroad.
Besides real estate professionals that can explain the present state of the market, what areas are experiencing the greatest growth, what the relationship between price and rents in various neighborhoods are, other professionals that are important to work with include mortgage professionals, title company closers, real estate attorneys, immigration attorneys, accountants (CPA’s), property management company’s and banking representatives. All of these topics will be covered on this site.
TITLE INSURANCE
The wide availability of title insurance is one of the best reasons to buy real estate in the United States. Title insurance provides certainty to the owner and other parties such as the mortgage lender that their interests are protected. If a concern arises as to title (ownership), the owner and mortgagee are protected from financial harm.
If financing the property, lenders will require insurance in the amount of the mortgage. The owner of the property will be offered a separate policy, called an “owner’s title insurance policy”, to protect the owners full purchase price. Often this policy is offered at a much reduced rate when done simultaneously with a lender’s policy.
In general, rates are often set by the State. Policies can be paid for by the buyer or seller. For that reason you should verify with a mortgage loan officer or a real estate agent what is typical and standard to the area you are purchasing in.
One important consideration of purchasing property in the U.S. is how the foreign investor will hold title to the property being purchased. Generally, ownership is held as an individual or group of individuals or ownership through legal business entities.
The most common forms of ownership are Individually, Tenants in Common, Joint Tenancy with Right of Survivorship, Tenants by their Entirety, Corporate Entity and Trusts.
When determining the best way to hold title, a foreign investor should consider tax liability, effects on estate planning and short and long term costs of their choice. Foreign Investor should seek professional advice. Please contact us for a referral to qualified professionals.
Individual
The simplest form of ownership for Foreign Investor is holding title as an individual in their own name. The main advantage is that it can be easily conveyed without obtaining signatures of other parties or having separate legal documents drawn up. If an individual taking title is married, the spouse may be required to sign documents to sell or mortgage the property.
Tenants in Common
Tenants in Common are the most common and can be created when two or more persons own real estate. In the absence a formally spelled out agreement in the Deed, it is assumed there is an equal ownership share among owners. Each owner may convey their share to a 3rd party or to their own estate upon death.
Joint Tenants with Rights of Survivorship
Joint tenancy with rights of survivorship requires that all joint tenants of a property must have acquired equal rights and equal interest in the property at the same time. The main advantage of joint tenants with rights of survivorship is that it is not subject to the laws of descent and distribution. Meaning, upon death of a joint tenant, the property passes to the surviving tenant(s) to the exclusion of the heirs of the deceased. If not sold prior to, the last surviving tenant will receive the estate and pass to his heir through probate.
Tenants by the Entirety
Tenants by the entirety are in essence joint tenancy between a husband and wife. As tenants by the entirety, husband and wife own and control the whole estate as if one person under the law. Tenants by the entirety features right of survivorship.
Tenancy by the entirety provides some asset protection as collection into such property is only possible if a judgment exists against both husband and wife. Some State laws may vary.
Corporate Entity
For estate planning and liability purposes in some cases it may be advisable to purchase real estate in the name of a domestic or foreign corporation. It should be noted though that these advantages may come at a cost. In addition to annual licensing fees and additional accounting requirements which will required for proper maintenance of corporate formalities, financing may be more difficult and sometimes requiring larger equity, higher rate or fees. Where foreigners can take advantage of double tax treaties, they might have a significant advantage by holding it through a corporate entity.
It is important that an investor work with an attorney to weigh the possible advantages against any disadvantages before setting up corporate structure, often an LLC, for real estate purposes.
Trusts
Trusts also can be used to provide asset and liability protection and most often recommend by estate planners. Trusts grant the power to one or more trustees to act in the best interest of the beneficiaries of the trust. The language of the trust defines the powers of the trustees to fit the intent and purpose of the individual(s) creating the trust. Trust can be revocable, non-revocable, land trusts, etc. The type of Trust will effect financing options.
Each form or method of ownership may affect liability exposure, asset protection and/or financing. It is, therefore, advisable that you discuss these options with specialized professionals before making your choice.
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