Thomas C. Roberge & Company

HIGH MORTGAGE BALANCE

COUPLED WITH 10% FIRTPA WITHHOLDING

CAN CREATE CASH SHORTFALL FOR FOREIGN SELLERS

July 11, 2007

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

A potentially difficult situation for foreign sellers is coming to the forefront with U.S. real estate sales. This situation has been caused in part by the overzealous lending practices by certain financial institutions. What can happen is that a foreign seller could have to bring money to the closing table for a sale to be closed.

The overheated real estate market that created tremendous appreciation in real estate prices between 2000 and 2004 caused many unscrupulous lenders to persuade property owners to refinance on their existing mortgages based on this appreciation. To further aggravate this situation these lenders offered products such as reverse amortization and other financially unsound mortgage products to their unsuspecting consumers. One only has to look at the financial mess brewing with Bear Stearns and others involved in the sub-prime mortgage market.

The present adjustment going on in the real estate market coupled with the “time bomb” these lenders have created, has resulted in a potentially dangerous situation.

Consider the following. Let’s say that Jane Smith from foreign country X sells her Florida condominium for $1 million. Jane refinanced on her mortgage two years ago when the lender told her the property had an appraised value of $1.2 million! She is presently carrying a mortgage of $900,000 on the property and the sale closing costs (realtor’s commissions, documentary stamps, etc.) are $75,000.

Here are the results:

Sales price

1,000,000

Mortgage payoff

900,000

Closing costs

75,000

10% FIRPTA withholding

100,000

1,075,000

Cash shortfall

(75,000)

In other words, the seller is going to have to bring $75,000 to the closing table just to complete the sale. It is in everyone’s best interest to identify this problem early in the listing period so the seller can better deal with this situation.

There are strategies our firm uses to effectively deal with this problem and handle the associated FIRPTA issues on an expedited basis. We have assisted several foreign sellers and their realtors recently that have been faced with similar circumstances. Contact us at (941) 952-5848 or (727) 822-9393 if you would like to discuss your situation and see how we can assist you.

Internal Revenue Service Circular 230 Disclosure – You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.