U.S. Department of the Treasury Moves to Make Cash Purchases of High End Real Estate More Transparent in Two Regions

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The story broke in The New York Times today, and it only affects Manhattan and Miami real estate right now... but get ready. The Feds are tired of cash buyers who hide their identities in “shell ownership” of luxury real estate. I, for one, am happy as it is so hard to chase down ownership of a property when it is in an LLC. But this could be a real game changer in those markets, and I will bet you a bottle of Veuve San Francisco is next: The Times also reports that 48% of the buyers in the Bay area used shell companies, whereas only 37% did in Miami, where the new rules will be effective beginning this March through August.

Treasury is essentially running a field test to see if they can capture scofflaws or major money stashing, and they plan to use title companies and mortgage companies to do so.

Since 2000, 44% of real estate sales over $5 million in the United States were to shell companies or, as I prefer to call them, LLCs. That came from what must have been a laborious investigative report by The New York Times. And that report may have influenced the folks in D.C. to implement this legislation —

Officials said the new government efforts were inspired in part by a series last year in The New York Times that examined the rising use of shell companies as foreign buyers increasingly sought safe havens for their money in the United States.

The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.

This is the first time the feds have required real estate-related companies to completely disclose names behind all-cash transactions. The Times suggests it may send shudders in certain parts of the Real estate community, particularly those high end sales where agents often keep very tight lips about the sellers, while benefiting enormously from high end sales commissions on appreciating properties snatched up by uber wealthy buyers. Those buyers prefer not to divulge their names for security or just plain privacy..

According to the story, “the initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.”

It has been getting a little wild. Or shall I say, greedy?

The Times examined a decade of ownership at an iconic condominium complex near Central Park, the Time Warner Center, and found a number of hidden owners who had been the subjects of government investigations. They included former Russian senators, a former governor from Colombia, a British financier, and a businessman tied to the prime minister of Malaysia, who is now under investigation. In Florida, The Times uncovered a condominium in Boca Raton tied to Mexico’s top housing official, who recently stepped down and is now a leading contender for the governor’s office in the southern state of Oaxaca.

The focus will be all cash sales and transactions using shell companies. “The government is requiring title insurance companies, which are involved in virtually all sales, to discover the identities of buyers and submit the information to the Treasury. The government will put the information into a database for law enforcement.”

This will affect billions of dollars in real estate transactions. In Manhattan, names of buyers who spend more than $3 million will be reported; in Miami-Dade County, the threshold is only one million for cash sales. That’s probably half of the Miami market. In Manhattan, there were 1,045 residential sales of $3 million or more in the second half of 2015, or about $6.5 billion worth of real estate transactions.

In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, Ms. Calvery said, they would develop permanent reporting requirements across the country.

Could this be the beginning of more government watchdogging over Real Estate? Apparently the Feds are really watching: the Federal Bureau of Investigation has created a new unit to focus on money laundering, and real estate will be a central emphasis.

Get ready for more headaches and regulations to wade through, more scrutiny probably placed on the Title Company. Meantime, I wonder how this will affect our market. We have a lot of lovely condominiums here in Dallas, and cash can still be kept pretty quiet in Texas. Plus we are a non-disclosure state. If the buyers don’t come here, they may head to the Off Shore islands like Grand Cayman and Nassau, who could see property values rise.

This is definitely w story we will be watching, but what do you think???

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Candy Evans

A real estate muckraker, Candy Evans is one of the nation’s leading real estate reporters. She is also the North Texas real estate editor for Forbes.com, CultureMap Dallas, Modern Luxury Dallas, & the Katy Trail Weekly. Candy has written for Joel Kotkin’s The New Geography, Inman Real Estate News, plus a host of national sites. Constantly breaking celebrity real estate news, she scooped former president George W. Bush's Dallas home in 2008. She is the founder and publisher of her signature CandysDirt.com, and SecondShelters.com, devoted to the vacation home market. Her verticals have won many awards, including Best Blog by the venerable National Association of Real Estate Editors, one of the nation’s oldest and most prestigious journalism associations. Candy holds an active Texas real estate license but does not sell. She is on the Board of Directors of Braemar Hotels & Resorts (BHR).

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