Arizona Property Law

The Foreign Investment In Real Property Act Affidavit

Many Arizona home sellers are confused when asked to provide a Foreign Investment in Real Property Act Affidavit and many Arizona home buyers don't know they should ask for one. 

So what is a Foreign Investment in Real Property Act Affidavit, and why do Arizona real estate lawyers and title agents make sure such an affidavit is part of every Arizona real estate transaction?

The Foreign Investment in Real Property Tax Act of 1980, otherwise known as "FIRPTA," established Internal Revenue Code Section 897.  This Section of the Internal Revenue Code applies to foreigners that sell real property in the United States.  One of the requirements is that the Buyer of such real estate withhold a portion of the sales proceeds due to a foreign Seller and pay the required amount to the I.R.S. on behalf of the Seller.  In order to ensure compliance with the Code, the Buyer is deemed liable for the tax that must be deducted. 

In most cases Buyers have no way of knowing whether a Seller is a foreign individual subject to the tax.  Thus, to avoid the withholding and the associated tax liability, a wise Buyer will ask the Seller to certify that the Seller is not a foreign person, even if the Buyer has no reason to believe the Seller is a foreign person. 

A Buyer of Arizona real estate should always include a contract provision requiring the Seller to deliver a FIRPTA Affidavit and permitting the Buyer to withhold the proper amount at closing and pay it to the IRS if the Seller does not sign and deliver a FIRPTA Affidavit avowing that the Seller is not a foreign person as defined in Section 897.

Why Should I Hire an Arizona Real Estate Lawyer When Purchasing a Home?

In many states, particularly in the eastern U.S., an attorney's help is mandated when buying or selling a parcel of real estate.  That is not the case in Arizona, and many ordinary real estate transactions are completed every day without an attorney's services.  There is no question that most real estate transactions are now so standardized, particularly with regard to the contracts and related forms utilized in the majority of Arizona real estate transactions, that a real estate attorney is not required.

In most cases, however, buyers and sellers should at least consult with a real estate lawyer to discuss some of the common legal issues that may not be addressed by a real estate agent.  Although experienced agents are adept at the negotiating part of the sales process, they are not usually able - or permitted - to address legal issues.

No two parcels of real estate are identical, and no two transactions are identical.  Only an Arizona real estate lawyer can properly advise you on unusual language you or the other party may want to include in the purchase contract, and counsel you on the types of problems that may lead to future, expensive litigation.

In sum, although it is no longer standard practice in Arizona, smart buyers and sellers should arm themselves with an experienced Arizona real estate attorney before proceeding with any property transaction.  In most cases the costs will be minimal, but the peace of mind and potential savings will be virtually incalculable.