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After months of confusion and uncertainty in the law, CEA will join with the California Land Title Association to seek legislative clarification of the manner in which escrow should remit Cal-FIRPTA withholdings to the Franchise Tax Board. AB 1338 CEA members may recall reading about AB 1338 in the past. A carry-over bill from 2003, AB 1338 originally proposed a series of changes to the Cal-FIRPTA law. The centerpiece of the bill was a proposal to give sellers the option to elect withholding based on gain in a transaction, at 9.3%, instead of the 3.3% withholding on total sales price. At one point, the bill also proposed to make escrow jointly and severally liable with buyers for withholding violations. At escrow and title insistence, this joint and several liability language was amended out of the bill. The reason AB 1338 did not pass last year related to revenue loss to the state. Estimates were that giving sellers the option to base withholding on gain instead of total sales price would result in an annual revenue loss of approximately $30 million, hardly an appealing prospect to the Legislature grappling with staggering budget deficits. Although the bill passed the Assembly, it has been sitting in the Senate Revenue and Taxation Committee since last summer. As all members are aware, the Franchise Tax Board has begun insisting that all escrow practitioners remit withholdings on a batched, monthly basis. Anecdotal reports are that the FTB has threatened to actually send back funds if not remitted with one check, and one company reports having been fined on a batched check when the withholding amount of one transaction in the batch was incorrect. While some title companies prefer the batched approach and have already implemented this procedure, others would prefer to stick with tried and true per transaction withholding. Additionally, small escrow and title companies find it burdensome and expensive to establish separate trust accounts, with separate trust account auditing and reporting, just to remit funds which can be sent in upon close of escrow in any event. When AB 1338 is amended, it will actually address three different Cal-FIRPTA issues. In addition to the remittance issue already discussed, the bill will include language exempting all foreclosure sales from withholding. Existing law only exempts foreclosure sales where the successful bidder at sale is a corporate beneficiary, but there really is no workable mechanism for withholding no matter who buys the property at the sale. The bill also will contain language to protect principal residences from with-holding, even if the owner does not necessarily meet the Internal Revenue Code test of residence in two of the prior five years. By amending out of the bill prior provisions relating to withholding based upon gain instead of total sales price, the hope is that there will be no identified revenue loss to the state. CEA members should monitor their e-mails, as we will be requesting that calls and letters be sent to legislators in support of AB 1338. Additionally, members who receive communications or penalties from the FTB over the remittance issue are urged to report them to CEA. • AB 703 (Ruskin): Social Security Numbers. Requires that documents containing social security numbers be discarded in a manner specified in the bill, and requires the encryption or locked storage of all records containing social security numbers. • AB 804 (Huff): Escrow Agents. Modifies the language concerning the Escrow Agents’ Fidelity Corporation which must be included in all advertisements by DOC-licensed escrow companies. • AB 886 (Runner): Proposes extensive modifications to notary laws, including a requirement to obtain a thumbprint of the signing party on all notarized documents. • AB 941 (Torrico): Loan Documents. Permits the transmission of certain loan documents to borrowers by electronic means. Intended to foster a discussion of streamlining the loan documentation process. • AB 1168 (Jones): Social Security Numbers. Designed to prohibit public entities from selling public records which contain full social security numbers, this bill could have profound impacts on the release of county real property records. • AB 1188 (Coto): Escrow Disbursements. Requires escrow officers to indicate a disbursement date on closing statements, in order to demonstrate that residential mortgage lenders have complied with limitations on charging interest. • SB 127 (Kuehl): Property Transfer Disclosures. Requires real property disclosure documents, including required documents from common interest development associations, to be delivered to buyers within 10 days after execution of the purchase agreement. • SB 270 (McClintock): Unclaimed Property. Lengthens the current 3-year escheat period on unclaimed property to 7 years. • SB 634 (Wiggins): Williamson Act Contracts. Imposes significant liability on property owners who transfer property subject to the Williamson Act without properly notifying local government. • SB 702 (Torlakson): Attached Residential Condominiums. Increases the presumed liquidated damages in sales of attached residential condominiums from the current 3% to 5%. |
by Michael D. Belote
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