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When it comes to designing relocation policies, every company strives to balance its desire for compliance with its need for cost control and efficiency. For those firms that assist employees relocating overseas with the sale of their homes, figuring out this balance is particularly important. One of the ways companies often help relocating employees is to handle the transfer of the deed of the home they are selling.
Peter Scott, tax counsel at global relocation services association Worldwide ERC, explained, “The receipt and recording of a deed reflects the change in legal ownership [of a home], and the change in responsibility for burdens and costs that is crucial to recognition of a sale of real estate.”
Using a ‘Blank Deed’ Saves Money
Because mobility programs move at the speed of business, the traditional home-selling process is often accelerated, and the employee may need to move long before a buyer for his or her old home can be identified. In these situations, many employers opt to use what is known as a “blank deed.” Essentially, this is a deed wherein the buyer’s information is unknown and therefore left blank. In jurisdictions where this is legal, using a blank deed has a clear strategic advantage because it saves money on filing costs and internal administration.
George Herriage, executive vice president and chief operations officer of relocation management company CapRelo, explained that “The use of two deeds increases transaction costs. In some states like Maryland, Washington and New York, the costs are dramatic.” Herriage pointed out that it is critical for companies to anticipate and understand these costs. He also underscored how a company’s strategy for managing a home sale affects the employee’s relocation experience: “The prevailing practice is to only exclude the cost of one set of transfer costs from the employee’s compensation. The second set of costs are typically treated as income to the employee. Most companies bear the cost of the additional tax burden by grossing up income to cover the additional obligation.”
Viewed with this lens, the advantages of a one-deed, or blank-deed, transaction are clear. Unfortunately, this is not possible in every state. Scott listed several of the statutory and regulatory issues companies confront when buying and selling homes in different states, including how “some states collect two transfer taxes even if only one deed is used. In others, questions can arise about whether notarization of a blank deed is proper, whether there is exposure to lawsuits brought under state false claim laws, whether relocation counselors must be licensed as real estate agents under state law, and other miscellaneous issues peculiar to particular states.”
A Blended Approach
Most relocation providers advocate for a two-pronged approach to managing home deeds, wherein a company uses the cost-effective blank deed when it is compliant to do so and generates two deeds when necessary under state and local laws. Cartus, a global provider of relocation and mobility services, refers to this as a blended approach.
To stay in compliance with the patchwork of federal and state regulations, Pamela Uhl, vice president and associate general counsel at Cartus, suggested consultations with each client’s tax and legal advisors.
The need for customized tax and legal advice is even more critical because passage of a deed from seller to buyer is just one factor the Internal Revenue Service evaluates when assessing the tax liability for a home sale. While a blended approach provides a good framework, both Herriage and Uhl emphasized that companies need to evaluate their relocation policies from a programmatic level in addition to looking at the individual pieces. The industry standard for making determinations on compliance is
Worldwide ERC’s Eleven Key Elements and Procedures of an Amended value Option. In reference to this publication, Herriage said, “The relocation industry has a long-standing road map designed to effect compliant arm’s-length transactions. The 11-step program is part of the DNA in the relocation industry. Companies should understand why each element is important.”
While cost and legal compliance are key priorities for an effective relocation program, the employee’s perceptions about the process should also be considered. Herriage noted that even when a blank deed is appropriate, “there can be anxiety tied to the title remaining in the employee’s name after completing a sale to the relocation company. The concerns are tied to credit impact, as well as the mortgage company on the home still holding the employee liable for the debts when a valid transfer hasn’t occurred.”
The overarching goal of any relocation program should be a positive employee experience, Herriage said. In service of this goal, companies need to anticipate concerns and proactively communicate with their employees to alleviate any misgivings and ensure that regardless of how a home sale is handled, all parties share common expectations of the process.
Amy Gulati, SPHR, GPHR, is an HR business partner at Helios HR, based in Reston, Va.
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