Some owners of U.S. rental property have run afoul of U.S. labour laws
Ray Turchansky
Sun
Is it time to take advantage of a crisis in the U.S. housing market and a strong Canadian dollar by buying property south of the border?
Some advisers, including Brad Willock, a vice-president with RBC Asset Management, say it is. He expects the flood of vacated houses in the U.S. to peak during the last half of this year. That makes 2009 and 2010 the perfect time to buy.
“The Canadian dollar is expensive, U.S. people are distressed sellers and afraid to buy, while you shouldn’t be,” he said.
Willock suggested Canadians should thoroughly research U.S. properties, and noted that planeloads of Europeans are also arriving there with chequebooks in hand, anxious to take advantage of a depressed housing market.
Most people buying U.S. property find that if they do their due diligence they have a satisfactory experience. Many even marvel at how efficiently and cheaply they can hire people there to do renovations, ranging from landscaping to changing appliances.
But there have been problems with some U.S. purchases. People who made a down payment on a house in a planned development have had the developers walk away from the project as local market conditions or credit availability deteriorated. Some U.S. sellers have tried to change the deal at the last minute. And some Canadian owners of U.S. rental property have run afoul of U.S. labour laws.
One reader told me that he and wife visit the Phoenix area regularly and decided to buy property there. After more visits and much research, they became interested in a house with a listed price that had fallen from $284,900 US to $224,900 to $212,900.
After counter-offers, the parties agreed upon a sale price of $205,500. As the buyers were placing $5,000 in escrow, they discovered the sellers were in fact a group of investors who had 20 such homes.
Then before the closing date of the deal, the sellers sent an e-mail saying they were $25,000 short of financing, and wouldn’t be able to close unless the buyers would pick up $13,000 of the cost — essentially increasing the sale price to $218,500 — and delay the closing date. When the buyers refused, the sellers got realtors representing both sides to each kick in $2,000 to try to close the deal.
But the Alberta couple refused to pay any additional amount, the deal fell through and they got their $5,000 deposit back. However, they remain out of pocket for various costs of the attempted purchase, including two trips to research the property and facilitate the deal.
An immediate question is whether this was an organized strategy on the part of the sellers: get buyers attached to a property, get some money down, then try to recoup any shortfall between the outstanding mortgage principal and the purchase price by hoping the buyers will pay it at the last minute rather than have the deal fall apart. The couple said they have heard of similar situations.
A reader from Vancouver warns that buyers of U.S. property should be aware of various laws and regulations.
He writes: “Let us assume you can find a renter with a solid income stream who will happily rent your new U.S. property and help you with your investment. Once you rent out this property, you must not be tempted to even so much as cut your grass or paint a fence as, according to federal law, you must hire a U.S. citizen to do any work on your income property. You will be in for a nasty surprise if you believe your unemployed or jealous neighbours will not contact the IRS.”
An Edmonton resident recently completed his purchase of a Phoenix property without any problem, but cautioned that if a person is trying to buy a home that has been foreclosed, there can be holdups at the bank while the is are dotted and ts crossed on the paperwork. He also noted that some U.S. developers, in a move to avoid speculators, have a clause in their contracts that if you go to sell within the first year or two of possession, the developer has the first right to buy the house.
And buyers are forewarned that America is the land of class-action lawsuits, where you could fall victim to one or be seduced into joining one. That being said, you will likely make your house purchase using an escrow agent rather than a lawyer.
If you are buying a U.S. house with the idea of moving there permanently, a good reference book is The Canadian in America, by Brian D. Wruk with Terry F. Ritchie. It discusses everything from Canada-U.S. differences in medical coverage to auto ownership to rules for pets.
© The Vancouver Sun 2008
