Normally the Foreign Seller is the one to take exception to FIRPTA withholding, which can be 15% of the total sale price. It is very unusual for a Buyer to object. Here is an interesting case that came up recently.
Foreign Seller (EU) contacts us to handle the FIRPTA case. Requests Buyer/Settlement Agent package which gives the withholding documentation for the IRS but more importantly, directs FIRPTArefunds as the recipient of the IRS's confirmation of payment documentation.
Settlement Agent (USA) comes up with something very unusual, they tell Foreign Seller that settlement agent is under contract with another firm for FIRPTA services. In the meantime, that firm was not responsive in over a week of time. Buyer was under the strict time limits to effect a timely sale for a 1031 tax free exchange.
The closing was supposed to take place near the end of buyer's time limit on a Friday. FIRTPArefunds was contacted the day prior, Thursday, with a request for super rush. We accommodated but to our surprise, settlement agent would not accept it due to the contract they said they had in place. Now go to the following Tuesday and Settlement Agent still cannot get a response from their supplier. Still wouldn't accept our documentation.
On the following Friday, Buyer cancelled their contract and backed out of the deal. We were told they had a standby property they closed on instead. 1031 exchanges are extremely time sensitive near the end of time limits. Foreign Seller was and is very upset, seeking now to sue and claim damages against the Settlement Agent because they had a very good deal.
Lesson to learn: Foreign Sellers and Realtors should ensure that the FIRPTA clause in their contract allows the Foreign Seller (the one paying the withholding) to provide at their expense, the documentation which the Buyer needs to file the FIRPTA with the IRS. We include Buyer/Settlement Agent packages routinely in our programs and we get them out very quickly.
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