If you are considering moving to one of these beautiful places you are probably also looking at what your options are, should you rent a property or buy one? You may also already be the owner of a piece of property in your country and may have already gone through the purchasing process. Well then, do not be misguided, you should consider that although these two countries are very similar for lifestyle and awesome quality of life, you may be surprised about the differences they have when it comes down to buying real estate.
CAN A FOREIGN CITIZEN BUY PROPERTY IN ITALY OR IN CALIFORNIA?
In general, Italy is considered a “no restrictions” country. Of course, there are no issues if you are a EU national or if you live in a country, like the U.S.A., with “reciprocity” (that is, an Italian citizen can buy a property in the U.S.A. without restrictions). Otherwise, international citizens can buy in California but regarding getting a loan, they must pay a higher deposit. Indeed, foreign investors may need to put down at least 50%. Same principle applies in Italy.
THE REALTOR
Italy: Finding a realtor who speaks English or your native language may be challenging. Realtors —also known as real estate agents (“agenti immobiliari”)—must have a license and be registered with the local Chamber of Commerce. However, more often than not, only the principal is registered, while the personnel may not be. Make sure you identify who are you dealing with and that the person you are entering an agreement with is a licensed agent. Agents represent the seller and the buyer jointly, and they get their commission (normally 3%) from both (3% from each party). Usually, buyers do not have exclusive agents, but they will have to contact each different agent depending on the properties listed.
California: Most home buyers use either licensed real estate agents or real estate brokers. They will want you to sign an exclusivity agreement for a certain amount of time. In California licensed buyers’ agents may represent a buyer on any property for sale in California. Best practices are to have a listing agent representing the seller, and a buyer’s agent representing the buyer, as there is so much due diligence work to be conducted. The buyer does not pay for this service, rather the buyer’s agent is paid out of the seller’s total commission, so it makes sense to use a good realtor to represent you and to be covered by the realtor’s company insurance in the unfortunate event that possible litigation ensues.
THE PURCHASE PROPOSAL
Italy: As soon as you find the property you like, the real estate agent will ask you to make an offer in writing and to put down a sum as a deposit (more later at point 3). There is no “standard form,” so you will be able to make the changes required by the specific situation. The offer will include at least the basic terms such as the identity of the parties and the specifics of the property, purchase price, request for a loan by the buyer, and closing date with the deed of sale to be executed before a notary.
At this point, you do not have much information in your hands. As such, you should make sure that your offer is “subject to” the conditions you still need to verify. Often agents submit their standard proposals to their clients where no conditions are mentioned claiming that you will sign a formal preliminary agreement with all of the conditions later on. However, from a legal point of view, as soon as your proposal is signed and agreed to by the seller, under Italian law, it will become a valid and enforceable preliminary agreement, and if you did not include terms and conditions, you may be prevented from adding them later on. So, “be careful” are the words to remember during this stage. Also, unlike you will soon read about in California, there cannot be multiple offers. Once you have made your offer, the agent will stop showing the property and will not accept any other offers until after the seller has declined your offer.
California: The purchase offer is on a standard California real estate purchase contract that is used for all purchases. Specific terms are included—such as the price offered, the amount of days to close, whether there is a loan, appraisal contingency, and any other specific items to the offer, including, inspection contingency time. Until these contingencies are removed, the 3% deposit is fully refundable. The escrow company and title company are also named. Normally the listing agent chooses these companies. If there are multiple offers, the listing agent will often only send counteroffers to the highest few and best condition offers, and once an offer is accepted, then the escrow will open. If there is a cash offer, then the earliest closing could be 10 days once all due diligence and documents signed off, while the standard with a loan is around 30 days.
THE DEPOSIT
Italy: The deposit is often delivered in the form of a check (usually a small sum, i.e. 5,000.00, depending on the value of the property) at the time of signing of the proposal by the buyer (see above under point 3). The check should be made payable to the seller and kept on hold by the agent until seller has accepted the proposal. The check may be given basically under two forms:
—as an advance payment of the purchase price, in which case it is referred to as “acconto” OR
—as a “caparra confirmatoria,” in accordance with Article 1385 of the Italian Civil Code. This is literally a “confirmatory deposit,” which entitles the seller as the recipient of the deposit to withhold such amount of money should the final contract not be entered into due to circumstances that are attributable to the buyer. On the other hand, if the final contract is not entered into due to circumstances that are attributable to the seller, the buyer is entitled to be paid by the seller double the amount of the deposit paid to the seller.
If the parties proceed regularly with the final deed of sale, the deposit is either returned to the buyer at the signing of that contract or, more frequently, the amount of the caparra confirmatoria is applied towards the purchase price.
California: Generally, in California you put a deposit down and then do your due diligence. The deposit is 3% of the purchase price and is called the EMD (earnest money deposit). It is held in an escrow account, and the escrow holder acts for both the buyer and seller. It is fully refundable until all contingencies are removed.
THE LEGAL AGREEMENT
Italy: In Italy, a “Preliminary Agreement” may be entered into once the seller has accepted the proposal, if the parties expect that some time will lapse before closing. It may happen that the buyer needs some time to do his/her due diligence, for example, to have a surveyor to look at the technical documents or the structural state of the property. Or, time is needed if the buyer wishes to apply for a mortgage. The preliminary agreement deals with basic issues such as the seller and buyer’s authority and capacity to enter into the final contract, as well as key terms of such contract, such as information that identifies the property (type of building, number of rooms, land registry data, floor plans, energy efficiency certificate etc.), purchase price, conditions, and closing date. The more specific it is, the less troublesome it will be entering into the final contract which will transfer the property and will be executed before an Italian notary public, a public official. The buyer must therefore pay special attention to what is written in the preliminary agreement, and it is advisable that an Italian lawyer who acts for the buyer either drafts or reviews it.
California: In California, there is not normally a preliminary agreement. There is the purchase offer and then possible counteroffers until an accepted agreement, but the initial purchase offer contract is what is used with the added forms until accepted by both parties. The “Purchase and Sale Agreement” is the most important legal document in a real estate purchase because it governs all the details of the transaction: the purchase price, the timeline for inspections and process to close the sale, representations and warranties by the seller about the home, covenants that the parties agree to perform, provisions in case of default and more. Even boilerplate provisions can be important as well as nuanced provisions such as rights of first refusal, transfers of lease agreements if the home is a multiunit home, and requirements on the seller to make certain improvements prior to sale.
THE REGISTRATION OF THE PRELIMINARY AGREEMENT
A very important protection for the prospective buyer is the registration of the preliminary agreement with the “Registri Immobilari,” the Italian equivalent of the UK Land Registry. The registration, as contemplated by Art. 2645-bis of the Italian Civil Code, determines that once the preliminary agreement has been registered, any other subsequent registration of the title (possibly arising as a result of the seller having attempted to sell the property to someone else) or the registration of a restriction on the property (by way of a mortgage or an enforcement action etc.) will not have any effect against the prospective buyer who firstly registered the agreement. In order for the preliminary contract to be registered, it must either be drawn-up before notary as a deed, or it may be executed by the parties whose signatures are certified as true by a notary public. The registration is valid for one year from the agreed original deadline for the signing of the final deed of sale and, in any case, within three years from the registration.
California: In California, there is no preliminary agreement registration; rather the title is recorded. The escrow company collects all the necessary documentation, including title details, and the title deed is exchanged, formalized and recorded with new owners at the County registration office. This title recording remains until a new sale is closed.
THE DUE DILIGENCE
Italy: What are the crucial documents you must have before the execution of the final deed of sale which will transfer the property under your name? At least, you will need to ask sooner rather than later:
- Atto di provenienza (ownership titles of the house)
- Floor plan of the house
- Visura catastale (cadastral document of the house)
- Attestato di prestazione energetica (energy certificate)
- Building permits if the house was built after September 1967
- Seller(s) and buyer(s) identification documents: Passports and tax codes.
- In the instance that the property also has some land, more documents will be necessary. For example, if the land is qualified for non-agricultural use, it is strongly suggested that a sworn expert opinion be attached to the deed of sale to minimize the risk of assessments by the Italian Tax Agency.
In this process, the notary’s role is also very important as he/she will run the crucial checks such as: confirming the seller really owns the property; that there are no mortgages or foreclosures recorded at the territorial offices of the taxation authorities; that there are no constraints, such as right of first refusal, or covenants regarding assets classified as historic, artistic or of archaeological value, that the cadastral plan conforms to the actual state of the property, that the property is in order regarding building/planning permissions, and also that the correct taxes are applied to the purchase.
California: During the due diligence period general inspections are done on the property, and this is the time you can request reasonable credits and repairs if needed, or even renegotiate if a major issue, such as a new foundation, is needed or permitted work. Also, during this time, if there is a loan contingency, to make sure the loan is fully approved. Further, the title of the property is checked to ensure there is a clear title on the property and all the standard California regulations are followed. A certificate of occupancy is required with all property purchases, not just new construction, and must be recorded as part of the sale. The tax liabilities and property taxes are reconciled between the buyer and seller during the escrow process and adjusted according to what is outstanding. If there are outstanding taxes owed, they must be reconciled at close of escrow so that the new owner is only liable for taxes from the date of closing moving forward. Once all is signed off, escrow organizes all the monies to be collected and disbursed accordingly.
OBTANING A BANK LOAN WITH A MORTGAGE ON THE PROPERTY
Italy: Italian banks are cautious lenders, and so you will be required to provide a lot of evidence to show that you are a low risk borrower. They will assess your actual ability to service a loan. In effect, they will look at your net income, after tax and collateral that you can provide. You can get variable and fixed rate mortgages, which are currently at historically low interest rates. Italian banks will look more favorably at your application if you are already a resident in Italy. Usually, you will be required to open a bank account with the lender bank, from which mortgage repayments can then be made. Well documented proof of income is required.
California: The situation described above is relatively the same in California. Several home loan documents are important to the transaction and include the loan application, loan estimate and closing disclosure and final mortgage or note. In addition, most lenders require buyers to have proof of homeowners insurance.
THE FINAL DEED OF SALE
Italy: The final deed of sale, namely the “rogito,” is the agreement that will finally transfer the property to the buyer, and it is prepared and signed before a notary. The signing of the final deed is the last step in the purchase process. If you do not plan on being present during the closing, then you should give someone power of attorney to sign on your behalf, usually your attorney. If you plan to be present at the closing but you’re not fluent in Italian, you may still give power of attorney to someone who speaks Italian so that they can act on your behalf and avoid the interpreter’s costs at closing.
California: This is much the same in California. A title deed is issued and must be notarized.
PAYMENT OF THE PURCHASE PRICE AND FINAL STEP
Italy: At closing, the balance of the purchase price is paid to the seller, usually through an Italian banker’s draft or a bank transfer. Another safe way to transfer the money, if your funds are abroad, is through a notary’s escrow account, which is a bonded client account in which the notary can receive funds for the payment of property and hold it safely until it’s time to make the payment to the seller. The notary will hold funds until the deed of the sale has been filed and registered, thus providing protection to the buyer in the period between signing the deed of sale and its registration. The notary may ask an additional charge for this service, typically about €200-400.
You will now receive the keys. The notary must then carry out the registration of the deed with the taxation authorities and pay the relevant taxes on your behalf. The deed must be filed in the public register. This is required by law so that everyone can see who owns the property and if it is subject to mortgages or encumbrances. The land registry is also updated with the cadastral registration. The deeds will be sent to you within a short space of time upon your request.
California: The escrow company collects all the monies and works with the lenders for any payoffs for the seller’s mortgage to have a clear title and the lender for the new buyer to make sure all items satisfied. Once finalized, the lender lets everyone know when the deed has transferred and been recorded, and at that stage the realtor can hand over the keys to the new buyer.
If you have any questions or need legal assistance, please email:
ITALY: Claudia Bortolani, Esq.
CALIFORNIA: Suzanne Natbony, Esq.
Real Estate Questions: Wendy Wilkins
Credits: *Claudia Bortolani is a licensed Italian and California attorney and law partner at the Aliant LLP office in Rome, Italy; Suzanne Natbony is a licensed California attorney and law partner at the Aliant LLP law office in Los Angeles, California; and Wendy Wilkins is a licensed California realtor with Exp Realty of California Inc. in Los Angeles, California.
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