Bulletin: RI2012001

Dear Associates:

One of the biggest hazards in Rhode Island real estate transactions is the R.I.G.L. Section 44-30-71.3 Withholding Lien. Any conveyance, other than a mortgage, creates a ten year invisible lien unless the deed contains specified withholding language. The Act took effect on January 1, 1992, and requires the buyer of real estate owned by a non-resident seller to withhold a percentage of the net proceeds paid to the seller, which is remitted to the State. All of the necessary Regulations and forms can be found on the Rhode Island Division of Taxation website, www.tax.state.ri.us. Instructions, forms and Regulations are found under the heading "Personal Income Tax." The withholding for individuals and other assorted entities is six percent (6%), except for corporations, for which nine percent (9%) is withheld. These sums must be remitted to the R.I. Division of Taxation within three banking days.

If a seller is a Rhode Island resident, it is not necessary to withhold any amount from the seller’s proceeds, but specific withholding language must be included in the deed, so as to discharge the withholding lien. The language must state that the seller is a resident as evidenced by affidavit. There is a specific residency affidavit on the above state website. The language in the deed would read as follows:

"This transfer is such that no R.I.G.L. 44-30-71.3 withholding is required as sellers are residents of Rhode Island as evidenced by affidavit."

            Where a conveyance is a gift, the language would read:

"This transfer is by gift so that no documentary stamps are required and no R.I.G.L. 44-30-71.3 withholding is required."

Where a seller is a non-resident, the prescribed percentage of the seller’s net proceeds is withheld and remitted to the R.I. Division of Taxation within three banking days along with the prescribed remittance form. The buyer must then obtain an Acknowledgment of Discharge of Lien from the R.I. Division of Taxation and record the same in the appropriate Land Evidence Records located in the thirty-nine cities and towns. Otherwise, the lien expires ten years from the date of the deed and is subordinate to any purchase money mortgage executed by the buyer. Consequently, the lien is extinguished by any foreclosure of the purchase money mortgage.

There are various withholding situations dependent on the type of seller or grantor involved in a Rhode Island conveyance. All Rhode Island issuing offices should contact the Stewart Underwriter responsible for Rhode Island for appropriate guidance and assistance. 

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