1. C O A L I T I O N C O R N E R Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries Evolving Title & Tax Risks in Transferring Real Property in Relocation Transactions The Worldwide ERC ® Coalition thanks John M. Brennan, CRP, GMS, Brennan Title Company, and Linda Hargreaves, CRP, GMS, Old Republic Title, Relocation Services for this edition. © 2009, Worldwide ERC ® Coalition

2. C O A L I T I O N C O R N E R Program objectives This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Explore some of the challenges created by current economic and housing market conditions and subsequent longer holding periods of transferees’ homes in relocation homesale assistance programs –Raise awareness of some of the key issues relocation professionals may want to consider to protect themselves and/or clients from resulting potential risks

3. C O A L I T I O N C O R N E R Background Information Relocation Homesale Assistance Programs In an employer-sponsored relocation program, assistance with the sale of an employee’s home in the old location/acquisition of a new home in the destination location are fundamental components In very basic, general terms, most programs aim to: 1.Free transferees from the ownership and costs associated with the property in the old location, while providing equity from the sale of the former home to enable the purchase of a property in the new location 2.Follow established procedures and guidelines to secure the most favorable tax treatment of the relocation assistance provided

4. C O A L I T I O N C O R N E R Background Information Relocation Homesale Assistance Programs Most often outsourced to a relocation management company (RMC), the employer acquires the existing residence as a benefit to the transferring employee, and completes the process of selling the home to an ultimate purchaser while the employee goes on to the new assignment In recent history, markets have been fluid, most properties transferred through the employer/RMC in reasonable time periods, and tax and/or legal challenges were relatively infrequent

5. C O A L I T I O N C O R N E R Current economic and real estate market conditions (April 2009) have led to increased delays in selling/longer holding periods and declining property values for properties in homesale assistance programs Conditions/delays pose potential legal and/or financial risks to those responsible for holding and disposing of transferring employees’ properties Today, however…

6. C O A L I T I O N C O R N E R For the purposes of this edition, risks in the following areas will be explored: Signature dates/deed/transfer issues Property taxes State non-resident withholding tax What are some of the risks?

7. C O A L I T I O N C O R N E R Signature dates Where allowable/advisable, many RMCs will use a single-deed or deed-in-blank process, whereby the deed is held in escrow and transferred to the final purchaser upon the resale closing Signature dates are being challenged much more frequently by buyer’s lenders or attorneys/title companies, especially in those cases with significant delays between sale and deed recording What are some of the risks?

8. C O A L I T I O N C O R N E R When signature dates are challenged… While each case/location requires individual analysis, one of the following responses may be possible: 1.Transferee may be willing to resign deed, but can pose difficulties if transaction occurred in a state requiring non-resident withholding documents, and the resigning takes place in a different tax year from which the original transaction occurred

9. C O A L I T I O N C O R N E R When signature dates are challenged… 2. If the RMC has a recordable power of attorney with the correct language for that state, it may be able to sign a new deed as attorney in fact for the transferee (Note: original power of attorney must be recorded with the deed)

10. C O A L I T I O N C O R N E R When signature dates are challenged… 3. Depending on the circumstances, the most prudent solution may be for the RMC to enter the chain of title, effectively creating a two-deed transaction

11. C O A L I T I O N C O R N E R Other Facts to Consider Some states have begun to assess penalties for not reporting transfers in a timely fashion –To date, most of these have been successfully challenged in the context of relocation, but issue to watch –RMCs should be aware of the possibility that some states may consider the date the original deed was signed as the transfer date, and attempt to assess interest on the transfer tax for “late filing” of the ultimate deed

12. C O A L I T I O N C O R N E R What are some of the risks? Property Taxes In current market, not uncommon for transferees to receive their equity payment – i.e., “cash out” – at a level that is higher than what is ultimately achieved through the property’s sale to purchaser Can result in supplemental property tax bill once the deed records With many counties and local jurisdictions aggressively pursuing revenue, date deed was signed increasingly regarded as the first transfer from which to assess any supplemental bills

13. C O A L I T I O N C O R N E R What are some of the risks? Property Taxes County assessment can take few months after deed has recorded, resulting in a tax bill long after file has been reconciled and employee has relocated Can possibly be contested by providing copies of buyout statement between RMC and transferee, but relocation professionals should be aware of risks and potential time/effort involved in disputing the bill

14. C O A L I T I O N C O R N E R What are some of the risks? Property Tax Example In the state of Michigan, Homestead Rescission form required to be filed with county when transferee is cashed out County can look at date of deed and compare it with tax rolls, and if taxes are uncapped, they can easily double Appeals can take up to a year for determination/reconciliation

15. C O A L I T I O N C O R N E R What are some of the risks? State non-resident withholding Tax on any gain on proceeds – commonly referred to as a withholding tax – required by many states for non-resident sellers Can pose challenges, particularly in those cases whereby transferee’s cash-out (and subsequent reporting of sale on income tax returns) and the sale of the property to the ultimate buyer do not occur within the same tax year

16. C O A L I T I O N C O R N E R What are some of the risks? State non-resident withholding Most states honor IRS definition of what constitutes a resident seller, but delays can cloud the issue when a transferee has left the state and set up resident status in another jurisdiction In some states, the tax status of a property is altered to “non-resident” even though there has been no actual recorded transfer of the property, putting the registration of the property in conflict with the transferee’s withholding form

17. C O A L I T I O N C O R N E R What are some of the risks? State non-resident withholding To date, most clerks are accepting the seller’s affidavit to resolve this challenge, but longer holding periods may raise increasing numbers of questions/challenges Could possibly put the RMC in position of having to pay the withholding tax and apply for refund in transferee’s name

18. C O A L I T I O N C O R N E R What are some of the risks? State non-resident withholding May be valuable to collect/hold anticipated state withholding tax until the process of re-selling has been completed, or May be wise to have transferee complete withholding exemption form to be used, if needed, for refund Given that employees may be more difficult to reach after the completion of a transfer, a properly constructed and signed power of attorney giving RMCs this authority in advance may be prudent

19. C O A L I T I O N C O R N E R In Conclusion… Current conditions posing evolving challenges/risks Longer holding periods require examination of circumstances and potential changes in practices