[WSBARP] Pass through sale structure

[Bickel, Dwight]

Transactions as Andrew Hay describe are common.  They can be structured
simply, but very often the parties who put together the agreements choose
complications that the escrow agent will not be willing to attempt.  Here
are some guidelines to consider as you structure the transaction.  For my
simplicity, I treat this as an assignment of a Purchase and Sale Agreement
that is formed between A and B, to be assigned to C for additional
consideration.

 

1.       The initial P&SA is structured as A and B are willing to agree
upon.  

 

2.       Parties B and C agree upon terms for the sale of that P&SA to C.
Party B receives a fee for the assignment.  The assignee, C, steps into
the shoes of the purchaser, B, in every way, so the closing proceeds as a
two-party transaction A to C.  The price paid to A for the land does not
change.  The deed and warranty obligations are A to C.  The conveyance tax
[called excise tax] is paid only on the amount received by seller.

 

3.       There is no excise tax due for the assignment fee.  The reason is
that it is not a payment for the sale of real property; it is for the
assignment of a contract.  There also is no sales tax due for that
assignment fee.

 

4.       Do not plan “simultaneous,” but separate escrows that are not
legally tied to each other.  Some plan that in order for A and C not to
know about the other terms.  Lawyers can imagine that fiction, but escrow
agents can’t really be committed to close A to B without the money
unconditionally delivered from C to B.  An escrow agent can’t really be
committed to deliver a deed to C, nor a mortgage to C’s lender, without
the deed unconditionally delivered from A to B.  An escrow agent aware of
both will be required to disclose.  Don’t ask an escrow agent to deceive
A, C or C’s lender.   A title insurer will not be willing to
unconditionally insure C’s title or a new mortgage from C prior to the
completion of the closing from A to B.

 

5.       If there is a fee due from C to B for the Assignment, that does
not have to be done through the escrow agent.   Parties B and C might not
choose an escrow at all related to the payment for the assignment.  The
assignment fee may be paid outside of escrow prior to or after closing.  B
could directly deliver the assignment from B to C to the escrow agent
without conditional instructions for its effectiveness.  If an escrow
agent is not aware of the payment done outside escrow, then the settlement
statements will not show that amount and the escrow agent will not be
required to disclose that payment to the parties to that transaction.  

 

6.       However, if B requires a fee as a condition of the effectiveness
of the assignment to be paid through the escrow agent, that is normal and
done most of the time.  There are many advantages, including that a
settlement statement shows all the buyer’s payments to establish the price
paid by the purchaser for the land for tax purposes.  Any lender will
require the assignment fee to be on the closing statement, or it will not
allow the borrower to include the assignment fee amount as the price paid
for the land.

 

7.       The closing statement for the purchaser will show the assignment
fee paid to B from purchaser’s funds.  B is not entitled to a closing
statement for the real property transaction, because that is not a sale of
real property transaction.

 

8.       The seller’s closing statement is not required to show the
assignment fee, because that is unrelated to the sale transaction terms
relevant to the seller.  It’s the same as the buyer’s loan fees from a
seller’s perspective.  Of course, the closer cannot use a HUD-1 closing
statement that is combined.  A commercial closing may be done with
separated settlement statements for the seller and the purchaser.  

 

9.       In my opinion, the amount of that assignment fee should be
disclosed to a seller.  However, if the purchasers B and C instruct the
closing agent not to disclose the amount of the assignment fee, the escrow
may do so only by disclosing to the seller that the parties require the
escrow agent not to disclose the assignment fee.  

 

10.     The P&SA typically obligates the seller to pay title insurance
premium only on the amount of insurance equal to the price paid to the
seller.  A title company should be willing to issue an amount of insurance
that includes the assignment fee when paid through the escrow.  Usually,
the purchaser should be charged the incremental increase, the same as a
purchaser who chooses extended coverage when a seller is only obligated to
pay for standard coverage.

 

Dwight A. Bickel

Regional Counsel

Fidelity National Title Group

701 - 5th Avenue, Suite 2300
Seattle, WA 98104
Phone: (206) 370-3189

E-mail:  <mailto:Dwight.Bickel at fntg.com> Dwight.Bickel at fntg.com

 

 

  _____  

NOTICE: The information contained in this message is proprietary and/or
confidential and may be privileged. If you are not the intended recipient
of this communication, you are hereby notified to: (i) delete the message
and all copies; (ii) do not disclose, distribute or use the message in any
manner; and (iii) notify the sender immediately. 
===============================
- To contact the list administrator, send a message to:
webmaster at wsbarppt.com 


- To unsubscribe, send a new message to: imail at lists.wsbarppt.com, with
the following in the body of the message: unsubscribe wsbarp - OR - send a
message to webmaster at wsbarppt.com asking that you be removed from the
wsbarp list. 

Information provided on this list should not be considered legal advice.
As with all lists - let the reader beware! No warranties or
representations are made as to the accuracy of any information provided.
All opinions and comments in this message represent the views of the
author and do not necessarily have the endorsement of the Washington State
Bar Association nor its officers or agents. 

-------------- next part --------------
A non-text attachment was scrubbed...
Name: winmail.dat
Type: application/ms-tnef
Size: 9942 bytes
Desc: not available
URL: <http://mailman.fsr.com/pipermail/wsbarp/attachments/20140513/6e18ee80/winmail.dat>