Eaton Peabody

Common issues encountered by foreign nationals buying and selling real estate in the U.S. - November 30, 2005

A surprising number of foreign nationals come to Maine to live, work, study or vacation each year. Especially in Maine, where home prices are relatively low, they often want to purchase or even build a home shortly after arrival. While foreign nationals are not prohibited from owning property in the U.S., certain practical considerations come into play. The following are issues often encountered by foreign nationals seeking to purchase or sell real estate.

What it means to be a foreign national

When foreign nationals go to buy real estate in the U.S., they learn that terms such as “alien,” “foreign national,” “foreign person,” “resident alien,” and “permanent resident” are often used interchangeably but may mean something quite different depending on the law involved. For instance, “nonresident alien” is a tax term whereas “permanent resident” is an immigration term.

As a general rule, permanent residents of the U.S. (green card holders) may buy and sell property without restriction. They are treated much like U.S. citizens in this regard. However, aliens in nonimmigrant status are often not so lucky. If work authorized, they are unlikely to face major hurdles. However, those aliens who enter as students or visitors generally have multiple considerations when purchasing property in the U.S.

Immigration law considerations

One thing foreign nationals should keep in mind when purchasing property in the U.S. is the effect holding such property may have on their continued ability to visit the U.S.

A common example is visitors who purchase vacation homes in the U.S. Foreign nationals entering as nonimmigrant tourists, such as B-2 visitors, generally enter the U.S. for a temporary period of up to six months. It used to be that B-2 visitors were routinely admitted for six-month stays. However, the period of admission granted to B-2 visitors is now limited to a time period commensurate with the purpose of the visit, up to six months. Accordingly, depending on individual circumstances, a foreign national may not be able to use a second home as much as originally hoped. “Retiring” permanently to the U.S. in visitor status is not permitted.

Also, while purchasing a vacation home is not necessarily inconsistent with B-2 status, it may result in increased scrutiny. Immigration officers may want to see evidence of the foreign national’s continuing ties to his or her home country. If the foreign national ends up staying longer and longer each time he or she visits the U.S., a pattern may develop where an immigration officer eventually questions whether the nonimmigrant intends to live in the U.S. The foreign national must be prepared to present evidence of ties to their home country to rebut the presumption that they really intend to live permanently in the U.S. Such evidence could include a primary residence and family members in the country of origin. A lot depends on how familiar immigration officials are with the alien or general travel patterns. For example, “snowbirds” from Canada are routinely admitted to the U.S. for winter visits to their intended warm-weather destinations.

Purchasing real estate: Financing and Social Security Numbers

Most prospective homeowners obtain financing in the form of a mortgage or construction loan. Financing a home or construction may present some special hurdles for foreign nationals.

To qualify for standard financing, some lending institutions require that foreign nationals be permanent residents of the U.S. or at least have a valid work visa. As part of the loan application process, lending institutions often ask for the foreign national’s Social Security Number (“SSN”). Foreign nationals on work visas such as H-1Bs already have or may easily acquire SSNs so that they may be paid wages by their employers. However, certain students and visitors may not be authorized to work, and therefore do not have SSNs and may not be able to get them. This is often the case with foreign nationals who seek to purchase vacation properties in Maine, where they only plan to spend part of the year.

Some traditional lenders have programs designed for foreign nationals which do not require SSNs, but many of these are not well publicized and have their limitations. For example, a couple who enters the U.S. under the Visa Waiver Program and wants to purchase a vacation home while in Maine may not qualify for a loan if they do not have a visa. Canadians may also encounter this issue as they are visa exempt, and often do not even carry passports. Also, lending guidelines may restrict such programs to primary residences and require higher down payments, thereby making it difficult for certain foreign nationals to purchase a vacation home.

Selling real estate: FIRPTA

Selling real estate may involve some unique considerations. The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) generally requires that a “foreign person” who transfers real estate in the U.S. is subject to a 10% withholding. See IRS website regarding FIRPTA at: http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html. Under FIRPTA, a “foreign person” is defined as follows.

Foreign Person

A Foreign Person is a nonresident alien individual, foreign corporation that has not made an election under section 897(i) of the Internal Revenue Code to be treated as a domestic corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual.

There are opportunities for reduced withholding, as well as exceptions to the withholding requirement. Please contact the Eaton Peabody Immigration Law or Tax Practice Groups for more information.