Why Legal Representation is Essential for Canadians Purchasing Property in the U.S.

In the last few years, the U.S. real estate market has sparked interest in the eyes of Canadian investors. We are not solely talking about major investors, but smaller players looking to purchase a second home to escape those long Canadian winters.

The process of purchasing U.S. real estate can be quite daunting for Canadians. As a result, this text will look at the process of purchasing U.S. real estate and discuss the benefits that legal representation provides to Canadian buyers purchasing property south of the border.

Although we will not discuss the differences between straight sales, foreclosures and short sales, it is important that you are aware of their differences, as they have various implications for the buyer. For more information on these topics, please refer here.

The logical place to start for any Canadian looking to make a U.S. real estate purchase is to find a realtor who can assist in finding the right properties. However, it is important that you choose your realtor wisely. Unfortunately, not all realtors are the same, and there are some who understand the needs of Canadians far better than others. This may not seem overly important, but when a U.S. realtor is looking for a property for a U.S. client, the implications are different than when that client is Canadian. For example, a realtor who understands the needs of Canadians will know to ask the right questions such as, “Will you be renting the property out for half of the year?” or, “Will you be coming down during the holidays with your extended family?” and so on. These questions can save time when you are trying to narrow down the right property for purchase. By knowing the answer to such questions, your realtor will be able to avoid condominiums that prohibit some of these things within their rules and regulations.

However, a great realtor is no replacement for legal representation. Having a lawyer on your side will enable you to have your initial offer to purchase reviewed prior to submission. This will allow you to truly understand the terms and conditions of the contract into which you are entering and ensure that any loose ends and negotiating tactics are taken care of. I have had personal experiences with realtors who failed to read through a purchase contract in detail. They simply filled out the provisions to their liking and asked their client to sign.

I know that there are realtors out there reading this who are taking my comments as a personal attack on their reputations. I would like to emphasize that there are many realtors out there who are very detail-oriented and truly look after the best interests of their clients. If that is you, then my previous statement does not apply to you. However, as in any profession, there are individuals who do not do their job with the high standards one would expect, especially when you are talking about a substantial purchase such as real estate. A lawyer helps to ensure that your contract is drafted with your best interests in mind – not with the sole purpose of closing a deal.

Once your realtor has found the property of your dreams and you have an accepted offer, the countdown to closing begins. This is when the title company takes over. Who is the title company? They are a neutral third party designated in the contract to transfer ownership to the buyer. They are responsible for ensuring that conveyance is done properly by verifying that there have been no defects in the chain of title leading up to your ownership. They will ensure that there are no liens that could force you to lose the property at a later date. They also issue title insurance in case a lien or defect in title was overlooked. Finally, the title company prepares all necessary closing documents to be signed by the buyer and seller.

Once again, it is worthwhile to have legal representation at this point in the purchasing process. A lawyer reviews all the documents prepared by the title company in order to ensure that they have been prepared correctly. This involves reviewing estoppel letters from the condo association, previous county tax bills, the closing statement and conveyance documents to ensure that title is being conveyed to the correct party. The latter is even more important when your purchase is not being made personally, but by an entity set up for the purpose of holding title to the property. In addition, a lawyer will verify the conditions that need to be met in order for the buyer to obtain the title insurance discussed above. In the event that closing takes place and one or more of the conditions for title insurance have not been met, the buyer could be faced with a situation where they are not protected against prior liens or defects in title. This could lead to a partial or total loss of property.

Many people are not aware that, in the U.S., one does not need to be physically present on the day of closing. Buyers can elect for what is called a “mail-away closing”. For these closings, the title company sends all the documents that the buyer needs to sign via mail or e-mail. These documents are then executed here in Canada and sent back to the title company by the day of closing.

Once again, having legal representation can make this process go much more smoothly than it otherwise might. For starters, your lawyer will deal with the title company from start to finish, allowing you to relax and not worry about the hassle of everything discussed above. Your lawyer will guide you through all of the steps leading up to closing and will ultimately allow you to close in their office here in Canada. During your closing, a lawyer can assist even further by discussing the best strategy for payment, allowing for better tax planning down the road.

In light of everything discussed, there is no question that purchasing in the U.S. can seem overwhelming. Having the right support to guide you through the process can make all the difference in the world.

David A. Altro featured in the Globe and Mail

There’s no place like a second home for wealthy investors

The Globe and Mail
November 18, 2011

As wealthy foreign buyers snap up more and more luxury homes in Canada, high-net-worth Canadians are similarly showing strong interest in purchasing multimillion-dollar residences abroad. But while their sights were once set on a French château, perhaps, or a Tuscan villa, the trend now is towards buying in the United States.

“We’ve really seen a fall-off in buying in Europe because of all the confusion over the past 12 months or so,” says Don Campbell, president of Abbotsford, B.C.-based Cutting Edge Research Inc. and the author of five best-selling books on real estate investing.

With so much volatility in Europe, especially in Spain, Portugal and Italy, “people don’t know in which direction the market is heading, or the direction of the potential tax implications,” he says. France has just added a new tax on foreign property owners, and the market in Dubai “is getting hammered,” he explains.

Currency fluctuations can cause real estate values to plummet in real terms, while economic woes often leave European governments with little choice but to raise taxes on properties belonging to the super rich.

As a result, says Mr. Campbell, there’s a lot of confusion about where high-net-worth individuals should buy that second property. Hence the popularity of buying in the U.S., where as Mr. Campbell says “you know what you’re getting”.

Other destinations of choice right now are stable tropical nations, such as Costa Rica and Panama. But, he says, “No.1 is the U.S. There’s no question about that.”

The financial incentives for buying luxury residences south of the border are obvious. “They’re at a historic low in terms of pricing,” said Chris Potter, a partner in the Toronto PricewaterhouseCoopers real estate practice.

Lawyer David Altro, author of Owning U.S. Property: The Canadian Way, also finds high-net-worth Canadians are increasingly attracted to real estate prospects south of the border. He says his clients in the eastern part of the country tend to buy in south Florida, while those in the West are eyeing properties in exclusive California cities such as Palm Springs, Desert Palms and Rancho Mirage, or in Hawaii.

The main reasoning behind such preferences is ease of access. Direct and relatively short flights mean less stress and hassle in travelling back and forth between Canadian and U.S. homes.

“They are also liking those areas because they have health care there, too,” he says. “But the bottom line is, we like to go south in the winter to get out of the Canadian weather and play golf and go to the beach. So no matter what the U.S. real estate market is like, it’s always going to be busy.”

Mr. Altro says many boomers and high-net-worth Canadians are taking up permanent residence in the U.S. With a much lighter tax regime “on a regular annual income basis,” he points out, “we have a steady stream of high-net-worth Canadians who are moving to the States. I have a client in Vancouver, worth about $50-million, and all that invested money in Canada is being taxed at such a high rate. Move to the U.S. and it’s like they have a new annual revenue.”

Hunter Milborne, a partner at Sotheby’s International Real Estate, explains why buying a property needs to be planned correctly. If a Canadian owns a property personally, “they have a fairly onerous estate tax [on inheritances], whereas if you own something corporately or through a trust, then that’s not the case.”

For Mr. Campbell, another issue implicit in owning foreign property is having sound insurance advice. “Being such a litigious country, you better have an incredibly good insurance agent for liability, fire and all the things you need to protect yourself for down there,” he says.

“If you’re buying into a gated community or a high-end condo, check to make sure how many of those properties are actually in use, as opposed to being in arrears, foreclosure or owned by a bank,” he says.

“Because the community still needs money to run … a lot of people who buy into those semi-deserted gated communities because it’s relatively inexpensive, find that their fees and operating costs can start to really go through the roof.”

There are, however, many Canadian multimillionaires opting to simply stay put, keeping the Canadian market in luxury real estate buoyant.

“The real favourite right now is keeping money in your hands and in your own country,” says Mr. Campbell, “especially with the global confusion that’s going on, and economic and political confusion in the U.S.”

David A. Altro interviewed by BuzzBuzzHome.com

BuzzBuzHome.com, a website that is, “focused on cataloguing all new residential projects in Canada, connecting purchasers directly with sellers, and providing social tools that enable collaboration amongst purchasers and industry experts” recently interviewed David for their blog.

Tax law extraordinaire, David A. Altro, teaches us how to own US property the Canadian way

BuzzBuzHome Blog
November 14, 2011

Today we had the opportunity to speak with David A. Altro, the managing partner at the law firm Altro and Associates. With 30 years of experience and offices in several Canadian and American cities, David is the go-to guy for advice if you’re considering purchasing property or moving to the US.

Now we’re sure he wouldn’t mind if you showed up at his office or gave him a call on his cell with your question about purchasing property in the US, but why inconvenience yourself when you could just read the latest edition of his book “Owning U.S. Property the Canadian Way.

In our interview David discusses the important points contained within the updated and expanded second edition and talks about why purchasing property in the US doesn’t have to be a hassle.

This Friday (November 18) there’s a seminar in Toronto at the Westin Prince called “Moving to the US the Canadian Way.” If you’re interested in learning more, you can register for the seminar on the Altro and Associates website.

And now, here’s David!

BBH: Tell us a bit about your firm?

DA: I’m managing partner at the law firm Altro and Associates. We’ve got offices in Toronto, Montreal, Calgary and Vancouver and three in Florida and one in Phoenix.

BBH: How long have you been involved in this industry?

DA: When I moved to Florida in 1982, I got a US law degree and became a member of the Florida Bar in 1984. Since then, I’ve been working in tax and cross border planning. In 1988 I moved back to Canada with my family and continued on. The whole practice grew and grew.

BBH: This is the second edition of your book “Owning US Property the Canadian Way” was just published. When did the first edition come out?

DA: 2009.

BBH: What did you hope to accomplish when you set out to write the initial edition of the book?

DA: I wanted to help demystify the issues people were raising. These issues were causing Canadians to worry about buying US property. The book is meant to help Canadians understand the issues and to plan properly to avoid the problems.

BBH: What’s new in the second edition of the book?

DA: On December 17, 2010, the US signed in a new tax law that affects Canadians. I wanted to explain it and provide new tax planning to avoid the problems. The other reason is a lot of Canadians want to move to the US so I did a chapter on moving to the US “the Canadian way.” On Friday I’m the speaker at a seminar at the Westin Prince in Toronto put on by Cross Border Planning Partners and it’s called “Moving to the US the Canadian Way”.

BBH: Some people might say, considering the economic climate in the US, why is it still a good time to buy property in the US for Canadians?

DA: Because the Canadian dollar is historically low, all the US real estate is on sale and interest rates are very low.

BBH: What are some of the most popular places to invest in the US for Canadians?

DA: Florida is number one. Traditionally, most Canadians go to Florida and Ontarians go to Florida the most. It’s got the ocean and it’s traditionally been a great direct flight down. If you look at Florida, Arizona, California or Texas, all of them have seen the prices come down dramatically.

BBH: What are some common mistakes people make when purchasing property in the US?

DA: Putting the title to the property in their name personally. That leaves them exposed to a few problems. Number one if Florida probate on death. That’s the legal procedure required in Florida when you die to transfer the property to your beneficiary. It’s expensive, time consuming and it freezes the estate. If you put it in a “cross-border irrevocable trust” then it avoids that problem.

The second problem is if you pass away then you may have the US estate tax, but if you have it in trust, the trust doesn’t die. You own the trust, the trust owns the property so upon death, there’s no tax.

BBH: You bring up some “red flags” in the book. What are some of the most important red flags to look out for?

DA: One of the red flags is if you put in a corporation, the red flag is you’re going to have high capital gains tax. Another red flag is if you need financing, you can’t get financing in a corporation. You need to watch out for those type of things. Another one is if you become mentally incapacitated and you have the property in your name personally, you’re going to have to go through a Florida guardianship procedure which can be very expensive. Put it in the trust so these red flags aren’t going to hit you.

BBH: Do you think you’ll keep putting out new editions of the book in the future?

DA: Absolutely! There’s one thing we know about tax law, it’s always going to change. It’s always tied to the politicians, politicians trying to get into power and making new tax plans.

Thanks for chatting with us David!

David A. Altro interviewed for Sun Media

David was interviewed by Sharon Singleton of QMI Agency for Sun Media. The article appeared in the Toronto Sun, Calgary Sun, on Canoe.ca and many other news outlets and law and tax websites.

U.S. property investment pitfalls easy to overcome

Sun Media
Sharon Singleton, QMI Agency
November 10, 2011

A growing number of Canadians are tempted by property bargains in the U.S., but are being put off by bad information about the possible tax pitfalls, according to David Altro, a lawyer and author of a book on the subject.

The baby boomer generation is looking for a warm place to retire and being lured by property at bargain-basement levels, making Canadians the biggest foreign investors in U.S. real estate.

“I wrote this book because there is a lot of mis-information out there for Canadians wanting to buy or move to the U.S.,” Altro said, whose Owning U.S. Property The Canadian Way is now into its second edition.

Much of it revolves around the potential tax bill and bureaucratic headaches for family members trying to sort out the estate upon the death of the property owner.

Altro said a lot of these problems can be avoided completely by setting up an irrevocable cross-border trust. That will help provide protection from creditors for your children and get around expensive U.S. laws on probate.

Similarly, placing your property in a trust is also beneficial if either you or your spouse becomes incapacitated. Under U.S. law, if one person becomes incapacitated the property can effectively be frozen and will require a series of costly headaches to un-freeze.

“A trust can’t become incapacitated,” Altro said.

Many property advisers recommend setting up a corporation to hold and manage U.S. property assets, though Altro said that is not tax effective.

Capital gains on a cross-border trust are taxed at about 15%, compared with a rate of more than 40% for corporations in Florida.

Although there are fees involved with setting up such a trust, Altro says “they are very small” compared with the costs of a potential tax bill or legal help to sort out problems once they have occurred.

There may be another upside for Canadians wanting to buy U.S. property. If they choose to become U.S. residents their income tax bills will drop substantially. Altro said the maximum U.S. income tax is 35% and that kicks in on earnings of more than $375,000. In Canada, the high rate is 46% on income of more than $125,000.

But for many that requires obtaining an elusive Green Card. A bill put forward by two U.S. senators eager to promote further investment in the country’s sagging real estate market may put a visa within reach.

The bipartisan proposal put forward last month would grant a visa to foreigners spending at least $500,000 on residential property.

Residential sales of U.S. properties to foreigners and recent immigrants totalled $82 billion in the 12-month period ended March 31, up from $66 billion the previous year, according to the National Association of Realtors. California accounted for 12% of those sales, second only to Florida.

David A. Altro to be Keynote Speaker in Toronto Workshop

If you are interested in attending, please REGISTER TODAY as spaces are limited!
This workshop is for Canadians considering moving to the U.S. It will cover immigration strategies, U.S. estate and tax planning, banking and financing, healthcare coverage, potential tax savings as a U.S. resident and much more.

David A. Altro featured on Alberta Primetime TV and Shaw TV

David A. Altro has been touring across Canada to promote his new book Owning U.S. Property – The Canadian Way, 2nd Edition. He has made appearances on the radio, television, and in print as an expert in cross border tax and estate planning.

Click here to watch the full length interview of David on Alberta Primetime as he takes part in a lively discussion on key topics such as cross border real estate and tax planning.

David was also interview on Shaw TV, view the video below!