From March 1 until August 27, 2016 title insurance companies in Manhattan and Miami and will have to identify the individuals behind LLCs buying real estate for cash.
The ruling is just for Manhattan and Miami-Dade county but is part of a global move to put a stop to money laundering.
The American Land Title Association has called for constant communication between all parties in the real estate transaction.
Starting today, luxury buyers wanting to pay in cash will no longer be able to hide behind an LLC in Manhattan or Miami-Dade County.
Real estate agents in those areas will be watching closely as rules from the U.S. Department of Treasury are implemented, requiring title companies to report certain buyer’s identities in high-end cash real estate transactions.
The ruling is designed to collect new data on cash buyers and act as an extra barrier to money laundering. Parties structuring or assisting in structuring a transaction to avoid the currency transaction reporting will receive a fine and up to five years in prison.
The Financial Crimes Enforcement Network (FinCEN) has said that title insurance underwriters in Manhattan and Miami-Dade County will have to identify “natural persons with 25 percent of greater ownership” in a legal entity making an all-cash real estate purchase of more than $3 million in Manhattan or $1 million in Miami-Dade County.
If the purchase is made entirely by a wire transfer or personal or business check, the reporting requirements do not apply.
If, however, any portion of the purchase price is paid using currency or a cashier’s check, certified check, traveler’s check or money order, it must be reported.
How is the industry reacting?
Although agents in Miami-Dade County were sanguine this week about the effect it will have on business, other counties in the state of Florida are already using the temporary six-month ruling for their own marketing purposes.
Maria Ines de Andrade, senior vice president of Columbia Title of Florida, said she had seen this in action.
“I went to a presentation for a new development in Fort Lauderdale where apartments were a purchase price of $1 million,” she said. “They said: ‘Buy here, because you don’t have to report to anybody looking into your private business.’”
De Andrade is clear that if any part of the transaction is cash, she needs to disclose it. “On a million dollar property, if somebody makes a deposit of $100,000 with a cashier’s check and the rest is wire transfer, I still have to report it because the first $100,000 was a cashier’s check,” she explained.
Wayne Stanley, head of public affairs at the American Land Title Association, said the message for real estate agents, attorneys and title offices was to have “constant communication.”
“We want to make sure that, at the end of the day, consumers still have a pleasant and compliant closing experience — that’s the biggest thing,” he said.
‘Up to the agent to follow through’
EWM Realty International broker associate Christopher Zoller has done his research with title offices and real estate attorneys. He said the majority of high-end transactions are done by wire transfer, so he is not foreseeing problems.
“Twenty years ago people would walk in with suitcases of cash — but in Miami (these days), it’s all done by wire.”
With a wire transfer, the assumption is that the bank has already cleared the funds, he said.
Although the new ruling puts responsibility of reporting at the door of the title underwriter company, it is “up to the agent to follow through if they know if something is not kosher,” said Zoller.
‘It’s not going to change things’
“We are not all that concerned,” said Samantha DeBianchi of DeBianchi Real Estate in Miami. “Buyers are always going to be able to figure out ways to move money around. It’s not going to change things; it’s going to be a bit more of a pain — but everyone has had advance notice to figure out a different strategy.”
In New York, luxury Halstead Property broker Louise Phillips Forbes said her concern about the new ruling was that it would make the buying or selling process a bit rockier.
“I’m in the process now of managing the pipeline,” she said. “I have drawers full of deals under construction.”
Forbes said that she had apartments in a small boutique building under contract, and many of them have been purchased in LLCs by international luxury buyers.
“It’s my responsibility to my clients — my sellers or buyers — that there are no kinks,” she said. “If there’s a problem and the title company has not got the information, I need to know about it in February, not wait ’til April 3.
“From my viewpoint, we as brokers absolutely have an obligation to facilitate this situation once in it is play — such as getting hold of disclosures,” she added.
FinCEN is looking for patterns with the data it is collecting, she said. “What we need to do is be supportive of that. If they have nothing to hide, investors should be forthcoming,” she said.
“This LLC law will allow the corporate veil to be penetrated for the government’s view only,” she added.
Flurry of expected transactions a myth?
Meanwhile, Nicole Beauchamp, a Engel & Völkers New York agent, said there has not been the flurry of transactions some were expecting in the run up to March 1.
She did not see investors going to other markets, though, either.
“If they are focused on a property because a relative is at NYU or Columbia, they are going to want to stay within the city,” she said. “There’s still a fundamental need that is driving the desire.”