As many Canadian REALTORS® find ways to partner with U.S. REALTORS® in these challenging times, a Canadian investor may find they own less than they first were aware if they purchase a U.S. property out of foreclosure.
For many foreign investors, access to accurate and timely legal and accounting information is difficult. This is particularly so in the U.S. where the independent states will have quite different laws. For an investor purchasing in Canada from another country there are many intricate taxation and land ownership issues that need to be researched.
Many people, drawn to a U.S. investment because of the low value or foreclosure opportunity, may be buying a lot less than they bargained for. In a typical transaction in the U.S., a buyer must be aware that the withholding laws are very similar to Canada in that any income you derive from that property will attract a withholding tax of 30%. If you owe less than that, the burden of proof is on you. Likewise a sale of a U.S. property can trigger taxation that is not anticipated. Returning funds to Canada is not a clean process either. Consequently, you will be very well advised to have Canadian and U.S. legal and accounting advice so make sure you budget for the additional costs of the transaction in the process.
The exchange rate can also present a problem, so much so, that a few years ago many U.S. investors in "pre-sale" projects in Canada were willing to walk away from their deposits and risk being sued because the exchange rate had varied between executing a contract and closing on it... if you think that could not happen to you, think again. How long do you intend to hold the property? Are you looking for cash flow revenue or asset appreciation?
The larger issue was reported to the media a few weeks ago and presents a disconcerting problem to Canadian investors in the present US market. The issue is that after closing you may find that you do not legitimately have title to your property. The issue stems from various packaging of financial instruments in the run up to the economic challenges we face today, and the title essentially getting confused in the process in such a way that the bank that foreclosed on the property before you purchased it, may not have had the actual right to foreclose on that property at all.
In searching around the internet I found a blog site that explains this quite well although it initially sounds confusing... here is an excerpt:
"Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new "gotcha" practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.
Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own."
In the mean time, the credo BUYER BEWARE is particularly true with what may appear to be a phenomenal deal in the U.S.
article By Mark Jennings-Bates |
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