FinCEN Disclosures (Geographic Targeting Orders) For Cash Real Estate Transactions Expanded!

August 12th Hallmark Abstract Service examined the unintended consequences that resulted from the government edict intended to address one issue while impacting another one!

The article titled ‘New York City Real Estate, Government Edicts And The Inevitable Unintended Consequences!‘ looked at the result from the requirement for title insurance company’s to disclose the actual buyer in a cash real estate transaction above a certain dollar amount for property located  in Manhattan, New York and Miami, Florida. The article opined that…

‘…On its surface as well as from the 35,000 foot view utilized by government bureaucrats, the plan seems as if it would be a good idea and a very noble effort as money laundering is a serious issue.

But now, about 8 months in, what has the impact been in the real world of business rather than in the political world of theory and pandering for votes?

I suppose as well as anyone could have or would have expected with the impact on developers who were blindsided by the initiative and property buyers alike remaining to be seen. But if the data below is any indicator, some are going to no doubt be hurt badly…

…In Manhattan and Miami, the luxury condo markets are already getting mauled. For example, we reported that in Manhattan, condo prices plunged 14% in just three months.

We also reported that foreign investors were pulling back, particularly Chinese investors, the most prolific of all foreign buyers. The number of homes they purchased over the 12-month period had plunged 15%…‘

And now the next step?

In its infinite wisdom FinCEN has decided to expand this program to six more localities as explained in the press release below.

FOR IMMEDIATE RELEASE
July 27, 2016 CONTACT: Steve Hudak
703-905-3770
FinCEN Expands Reach of Real Estate “Geographic Targeting Orders” Beyond Manhattan and Miami

U.S. Title Insurers Required to Identify High-End Cash Buyers in Six Major Metropolitan Areas

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced Geographic Targeting Orders (GTO) that will temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. FinCEN remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To better understand this vulnerability, FinCEN issued similar GTOs earlier this year covering transactions in Manhattan and Miami-Dade County, Florida. The GTOs announced today will expand upon the valuable information received from the initial GTOs.

The initial GTOs are helping law enforcement identify possible illicit activity and informing future regulatory approaches. In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers. This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering. Federal and state law enforcement agencies have also informed FinCEN that information generated by the GTOs has provided greater insight on potential assets held by persons of investigative interest and, in some cases, has helped generate leads and identify previously unknown subjects.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

To build on the useful data generated thus far, the GTOs announced today include the following major U.S. geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area can be found in this table. A sample GTO, which becomes effective for 180 days beginning on August 28, 2016, is available here.

FinCEN is covering title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

Any questions about the Orders should be directed to the FinCEN Resource Center at 800-767-2825.

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FinCEN’s mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.