In brief
Real estate law in the US is a state matter and not a federal one, so every transaction begins with the question of which state it takes place in. There is no government guarantee of registration, and the market has developed title searches and title insurance in its place. An Israeli investor needs to choose a holding structure (direct, LLC or trust) in advance, and to buy an owner's policy alongside the lender's policy.
Key takeaways
- 1Real estate law in the US is a state matter: each of the 50 states has its own legislation, registration system, tax rules and transfer procedures.
- 2The US county registry does not include a government guarantee of the validity of title - protection comes from a title search and title insurance.
- 3The lender's policy covers only the bank's outstanding loan balance, so a buyer who finances with a mortgage needs to buy an owner's policy as well.
- 4The US federal government almost does not restrict the purchase of real estate by foreigners, and state laws on agricultural land are aimed at “countries of concern” and do not apply to Israeli citizens.
- 5Direct holding in a personal name exposes you to lawsuits and to federal estate tax; the holding structure should be chosen before the purchase, with a US-Israeli tax adviser.
Why is the US fifty markets and not one market?
Because real estate law in the US is a state matter (State Law) and not a federal one: each of the 50 states has its own real estate legislation, registration system, tax rules and title transfer procedures. The first mistake that Israeli investors make in approaching the American market is to think of it as one market, like Romania, Bulgaria or Greece, where one civil code applies throughout the country.
Florida differs from California and Texas differs from New York, and the differences are not cosmetic: they concern questions such as who conducts the transaction, how the tax is calculated and what protection the purchaser has.
Most states operate under the Common Law, in the Anglo-American tradition, except for Louisiana, which continues to hold a civil law tradition originating in the Napoleonic Code. Even within the family of Common Law states there are significant differences: nine states, including California, Texas, Arizona and Nevada, operate under a “Community Property” regime between spouses, which also affects real estate transactions. The other states operate under a “separate property” regime.
For the Israeli investor the practical implication is one: every transaction in the US begins with the question “in which state”, and the answer determines almost everything that follows - who conducts the closing, how much registration costs and which taxes apply.
The US county registry does not include a government guarantee of the validity of title - protection comes from a title search and title insurance.
How does real estate registration work in the US?
Registration takes place at the county level (County), usually with the “Recorder of Deeds” or the “County Clerk”, depending on local terminology. Unlike European countries, where a central or regional government land registry determines and verifies who the registered owner is, in the US it is a chronological public recording system (Recording System): every deed, mortgage or lien that is recorded becomes available for public inspection, and the order of recording determines priority between competing claims.
The critical point: the US county registry, unlike the European registries, does not include a government guarantee of the validity of title. The state does not check or confirm that the registered seller is truly the lawful owner, but only documents what was filed and when. The gap between “what is recorded” and “what is actually true” is the reason for the existence of the title company and title insurance industry.
In what structure should you hold a US property: direct, LLC or trust?
There is no single right answer. The choice depends on the size of the investment, the purpose of the property (personal residence versus investment) and the family's overall estate planning. Unlike European countries such as Romania and Bulgaria, where the main distinction is between acquiring a property and acquiring the shares of a company, in the US the main question for a foreign investor is in which legal structure to hold the property, and not only how to acquire it.
| Structure | Advantages | Disadvantages and exposures | Mainly suited to |
|---|---|---|---|
| Direct holding (in a personal name) | The simplest option procedurally | Full exposure to civil lawsuits (no protection from creditors) and severe exposure to federal estate tax | Someone who prefers procedural simplicity and understands the exposure |
| A US LLC | Separation between the investor's personal assets and the company's assets, and protection from personal exposure to claims related to the property; in advanced structures, for example an LLC held by a foreign corporation, US estate tax exposure can be significantly mitigated | The structure must be planned in advance with a US-Israeli tax adviser and not after the purchase | The most common structure among foreign investors, and in particular Israelis |
| Trust (Trust) | Estate planning and intergenerational transfer; sometimes also privacy, since in certain states a property held in trust does not appear in the investor's name in the public record | Requires closer legal accompaniment than a simple LLC | Estate planning and intergenerational transfer |
The cost of forming and maintaining an LLC is relatively low, in states such as Delaware, Wyoming or Nevada, which are known as company-friendly.
Can an Israeli buy real estate in the US, and what restrictions are there?
Yes, and almost without restriction at the federal level. In sharp contrast to Romania, Bulgaria and Greece, where there are clear restrictions on the purchase of land by citizens of countries that are not members of the European Union, the US federal government almost does not restrict the purchase of real estate by foreigners. There is no citizenship or residency requirement to buy a residence, a commercial property or investment land, and this is one of the main reasons the American market is so open to international investors.
However, you should be aware of two developing regulatory trends:
- State legislation: in recent years about 36 states have enacted laws restricting or prohibiting the purchase of agricultural land, land near military bases or critical infrastructure. Almost all of these laws are expressly aimed at “countries of concern” (China, Russia, Iran, North Korea, and sometimes Cuba, Syria and Venezuela) and do not apply to Israeli citizens. This is a very dynamic area, with dozens of new bills each year, so a check specific to the state and the type of property is an integral part of serious due diligence, especially for agricultural land or land near sensitive facilities.
- Federal reporting and review: the purchase of agricultural land is subject to a federal reporting obligation under the AFIDA (Agricultural Foreign Investment Disclosure Act), and transactions near airports, ports and certain infrastructure may fall within the review authority of CFIUS (the Committee on Foreign Investment in the United States). This is a consideration relevant mainly to large commercial or industrial transactions, and not to the purchase of an ordinary residence or investment apartment.
What are title companies and title insurance, and why are they critical?
This is the uniquely American solution to the registration problem: in Europe, including Romania, Bulgaria and Greece, the state operates a land registry that provides legal certainty as to who the owner is. In the US there is no such government guarantee, and the private market has developed an alternative solution: title companies and title insurance.
The title search (Title Search)
Before every transaction a title company or an attorney (depending on the state) conducts a chain of title (Chain of Title) search in the county registry, which usually goes back 30 to 60 years and sometimes to the historical “root of title”. The search is intended to find active liens and mortgages, attachments, easements (Easements), errors in boundary descriptions, forged deeds, unresolved estate problems and conflicting ownership claims. Every defect discovered is called a “cloud on title” (Cloud on Title), and must be removed before the transaction can close.
Title insurance (Title Insurance)
Unlike any other familiar insurance, title insurance does not cover future risks - it covers defects that already exist in the past but have not yet been discovered. The premium is paid once at the closing of the transaction (not annually on a recurring basis), and the coverage remains in force as long as the owner holds the property. There are two types of policy:
| Policy | Whom it protects | Is it mandatory |
|---|---|---|
| Owner's Policy (Owner's Policy) | The purchaser, against financial loss resulting from a title defect discovered after the purchase | Not legally mandatory, but in practice almost always purchased |
| Lender's Policy (Lender's Policy) | The financing bank, up to the loan balance only | Required in every transaction financed by a mortgage |
The two policies do not replace one another, and this is a point many buyers miss: the lender's policy covers only the bank's outstanding loan balance, not the buyer's equity. A buyer who bought a property for a million dollars with a $600,000 mortgage, and a defect in title was discovered, will see the lender's policy compensate only the bank, and the $400,000 of equity will be lost without coverage. Therefore a buyer who finances his purchase with a mortgage is required to buy the two policies separately: the lender's policy because the bank requires it, and the owner's policy because his own investment depends on it. Someone who buys with cash needs only an owner's policy.
The role of the title company in closing the transaction
In many states (for example California, Texas and Florida) the title company is not only the issuer of the policy, but also serves as the “escrow agent” (Escrow Agent) and as the party that actually manages the closing of the transaction: it holds the purchaser's funds and the seller's documents until all the conditions have been met, and then carries out a simultaneous exchange of the money for the title.
In other states (for example New York, New Jersey, Connecticut and Massachusetts, known as “attorney states”) an attorney is the one who manages the closing, and not only the title company. It is important to know in advance which model applies in the state where the property is purchased, because this directly affects who actually represents your interest at the closing table.
What are the steps of the purchase process in the US, from offer to closing?
- Offer and purchase agreement: the process opens with the submission of a purchase offer (Offer), which becomes a binding “Purchase Agreement” upon acceptance. At this stage “earnest money” (Earnest Money Deposit) is paid, usually 1% to 3% of the transaction value, sometimes up to 10% in competitive markets, held in escrow (Escrow) by the title company or the attorney and not by the seller.
- Due diligence period (Due Diligence / Contingency Period): most purchase agreements include “contingencies” (Contingencies) that give the buyer a protected right to exit: an inspection contingency (Inspection Contingency), a financing contingency (Financing Contingency) if the purchase is financed, and an appraisal contingency (Appraisal Contingency) ensuring that the financing bank agrees to the value of the property. In parallel the title search is conducted.
- Closing (Closing): on the day of closing all the transfer documents are signed, the funds are transferred and the deed (Deed) is issued in the buyer's name. The deed is submitted for recording in the county registry, and from the moment of recording the title is effective against third parties. In most states it is possible to sign remotely by power of attorney or by remote notarial deed (in states that permit it), which significantly eases things for Israeli investors who do not fly to the US for the closing alone.
What are the costs of purchasing in the US, and what varies from state to state?
There is no “uniform purchase tax” in the US. There is a wide range of fees and taxes, which each state, and sometimes each county, sets itself.
| Component | What is important to know |
|---|---|
| Broker commission | Since the legal settlement of the National Association of Realtors (NAR) that took effect in August 2024, a buyer must sign a written representation agreement with his buyer's broker before property tours, specifying the broker's fee expressly. The buyer's broker commission is no longer automatically published in the property databases (MLS). In most transactions the seller still agrees to bear it as part of the negotiation, but this is no longer a given and it is worth confirming in advance in the agreement. The total commission (seller's broker and buyer's broker together) currently runs around 5% to 6% of the property price. |
| Title insurance, escrow and closing fees | Cost varies by property value and state. |
| Transfer tax (Transfer Tax) | Some states, such as New York, levy a significant transfer tax; other states, such as Texas, do not levy it at all. The specific rate in the state and city should be checked. |
| Annual property tax (Property Tax) | There is no federal property tax; the tax is set and collected at the county level and calculated on the assessed value of the property. The national average rate is around 1% of the property value per year, but it varies greatly: below 0.5% in Hawaii and above 2% in New Jersey and Illinois. Some states, such as California, limit by law the rate of annual increase of the assessment (“Proposition 13”), a significant advantage to long-time owners compared with new purchasers. |
How does a foreign investor get a US mortgage?
Many US banks offer dedicated programs for foreign investors (Foreign National Loan Programs), which do not require a US credit history, but on less favorable terms than those offered to residents: a higher required down payment, usually 30% to 40% of the property value, and a higher interest rate.
Many foreign investors, especially in transactions under a million dollars, choose to pay in cash, which also streamlines and shortens the closing process. For dealing with the US authorities, including paying tax, every foreign investor needs a taxpayer identification number (ITIN), issued by the IRS.
What is worth doing before signing a transaction in the US?
Many Israelis approach the American market with a feeling that it is more “familiar” than European markets, and many times this is exactly the mistake. The difference between a successful investment and an expensive headache is almost always in the same questions: was the specific legal situation of the state where the property is located examined, and not only “the situation in the US” in general; was full title insurance purchased and not only the one the bank required; is the property held in a structure that mitigates estate tax exposure and not in a personal name out of habit or lack of awareness; and what are the real purchase costs in the specific state, including transfer tax, annual property tax and closing fees. Title insurance in place of a government guarantee is an efficient and proven mechanism, but it works only when it is understood and not assumed to be identical to what is familiar from the European countries.
The content of this article is general information only and does not constitute legal advice, tax advice or an investment recommendation. Laws and tax rates in the US vary from state to state and may change, and there may be specific circumstances affecting their application to a given case. Before any investment decision or legal action, specific advice is recommended.
Frequently asked questions
Can an Israeli buy real estate in the US?
Yes. The US federal government almost does not restrict the purchase of real estate by foreigners, and there is no citizenship or residency requirement to buy a residence, a commercial property or investment land. It is worth checking specific state legislation, mainly for agricultural land or land near sensitive facilities.
What is title insurance, and why are two policies needed?
Title insurance covers defects in title that exist in the past and have not yet been discovered, for a one-time premium. The lender's policy covers only the bank's outstanding loan balance, so a buyer who finances with a mortgage also needs an owner's policy to protect his equity.
In what structure should a US property be held?
The options are direct holding, an LLC or a trust. Direct holding exposes you to lawsuits and to federal estate tax. An LLC is the common structure among Israelis and provides protection from personal exposure. The choice depends on the size of the investment, the purpose of the property and estate planning, and it should be planned in advance with a US-Israeli tax adviser.
Can a transaction in the US be signed remotely?
In most states it is possible to sign remotely by power of attorney or by remote notarial deed, in states that permit it, so an Israeli investor does not have to fly to the US for the closing alone.
How much down payment does a foreign investor need to get a mortgage in the US?
In dedicated programs for foreign investors the required down payment is usually 30% to 40% of the property value, and a higher interest rate than for residents. No US credit history is needed, and a foreign investor needs an ITIN from the IRS.
Read next · 9 min readTitle Insurance and Escrow in a US Transaction: What Protects You and What Does NotTitle insurance and escrow in the US: what the owner's policy covers, exceptions to check, how the escrow account works and how to defend against wire fraud.Read the guideThe information in this guide is general in nature and does not constitute legal or tax advice on any specific transaction. Every transaction is assessed on its own facts.