The Unlawful Inducement Rule, Estoppel Certificates and FIRPTA Update

An Important Update from The Department of Financial Services

Dear Members,

UNLAWFUL INDUCEMENT AND ESTOPPEL CERTIFICATES:

Another Monday surprise this week! The Department of Financial Services issued a letter interpreting provisions in the Florida Insurance Code and the new unlawful inducement rule with respect to the prepayment of fees for association estoppel letters by licensed agents and agencies. The letter stated that such an advance payment would violate the Florida Insurance Code as an "inducement for title insurance." The applicable statutory provisions as cited in the rule are Sec. 626.9521 and Sec. 626.9541(1)(h)(3). Here is a link to the letter. And for your convenience, here is a link to the entire rule that went into effect on February 9, 2016.

So... what does this mean? Does it include attorney agents (realizing that DFS does not regulate attorneys, but attorneys are certainly obligated to follow Florida statutory law)? If the title agent doesn't advance the payment, who will pay the management company/association in order to get the estoppel certificate? Nothing in the letter (or current law) prohibits management companies/associations from requiring advance payment.

On Tuesday, FLTA sponsored a webinar on the new unlawful inducement rule. Matthew Guy from DFS participated in the webinar and he made two significant statements about the letter and the rule in general:

• He confirmed the position stated in the letter, but went on to say that if the title agent has something in their file (a writing or perhaps an email?) from the person obligated to pay the estoppel fee that constitutes an agreement to reimburse the agent, then it is OK for the title agent to advance the cost.
• DFS does not intend to aggressively enforce the new unlawful inducement rule right away, at least with regard to this specific issue. They intend to give an appropriate amount of time for agents and related third parties to learn about the rule, etc. DFS plans on participating in more webinars and posting FAQs and other information on their website.

THE BOTTOM LINE:

I believe that for the time being, you should conduct "business as usual" until this situation gets clarified with DFS. We also need to wait and see what happens in this year's legislative session with regard to pending estoppel legislation. The FLTA bill that included a prohibition on advance payments is not having an easy time in Tallahassee and there is a great deal of effort being put forth to get something of value passed. This situation is changing rapidly and is very much in flux. Stay tuned.

FIRPTA UPDATE:

The confusion over the effective date of the changes to FIRPTA withholding rates has apparently been resolved – the effective date has been confirmed to be February 17, 2016. The IRS has released new versions of Form 8288 and 8288-B to reflect the increase in the FIRPTA withholding rate to 15%, effective for closings on or after February 17.

The new forms resolve a controversy over the effective date of the new rate. Various dates have been suggested, based on uncertainty as to the "Date of Enactment" of the new legislation. The PATH Act was passed by Congress on December 17, and signed into law on December 18. The increase to 15% withholding is stated to apply to "dispositions after the date which is 60 days after the date of enactment of this Act." Using December 18 as the date of enactment, the 60th day is February 16, so the new rate is required for closings beginning the next day, February 17.

Closing agents should immediately start using the new forms, denoted "Rev. February 2016." Instructions for the forms have not yet been updated, and there is not yet any indication from the IRS about whether the existing regulations for purchase of a residence for $300,000 or less will apply for sales of residential property for $1,000,000 or less to reduce the required withholding from 15% to 10% when the buyer intends to use the property for a residence.

That's all for this week, and I think it's enough! As always, thank you for your support of The Fund.

Best Regards,

Melissa Jay Murphy
Senior Vice President and
General Counsel