The federal government’s tracking of secretive luxury home buyers in Miami — a move that sparked a firestorm of controversy and criticism from the city’s real estate community — officially begins Tuesday.
For the next six months, title insurance companies will be required to reveal the true names of buyers behind shell companies that pay $1 million and up for a home in Miami-Dade County and $3 million in Manhattan. The order, first announced in mid-January, was issued by Financial Crimes Enforcement Network as a bid to mitigate money laundering through high-end U.S. real estate.
The forms of payment scrutinized will include cash — rarely used in the upper echelon of deals — and the more common cashier’s checks and certified checks.
Wire transfers will not be included in the screenings. However, a FinCEN spokesperson told The Real Deal last month that if it becomes apparent buyers are using those transfers to skirt regulations, the agency will “adapt in the future accordingly.”
Here’s how it works: When a transaction meets the criteria, title agents submit a federal form and all required information to title underwriter companies, attorney Scott Marcus of Becker & Poliakoff told TRD. Those underwriters then pass on the information to FinCEN, or otherwise face the possibility of criminal and civil penalties.
Even if most of the funds are sent using a wire transfer, any use of cash or a paper check — including for deposits — triggers the process, Marcus told TRD.
Before the order even came into effect, members of Manhattan and Miami’s real estate communities began discovering ways to circumvent the rules.
While FinCEN will track buyers who use limited liability companies, other forms of ownership — including property trusts and partnerships — could be used to conduct business without scrutiny.
So why would a buyer need to use a limited liability company in the first place? Primarily for estate taxes, Marcus said. Foreign buyers in particular are rarely advised to list their real names on deeds to protect against FIRPTA, an act by the IRS that subjects foreign investors to taxation for their U.S. real estate purchases. Another major perk is keeping real estate deals out of the public eye.
With a federally mandated removal of such privacy, some worry that foreign buyers — especially security conscious Latin Americans — will take their dollars elsewhere. That could constrict an already tightening pool of foreign buyers whose purchasing power has suffered in recent months as their currencies weaken against the dollar.
And there’s even speculation that the order could push luxury business north to Broward and Palm Beach counties, which are not affected by FinCEN’s order — and also boast lower prices on average.
Although the hoopla over FinCEN’s ruling has permeated the offices of attorneys and brokers, blowback from the one demographic that arguably matters the most — the buyers themselves — has been mostly absent.
“I haven’t had anybody come to me and say “‘Oh, I don’t want to reveal my name,'” Nelson Gonzalez, senior vice president with Esslinger Wooten Maxwell in Miami Beach, told TRD.
He said that when the order was first publicized, the only concerned calls he got were from a few tax lawyers.
“It’s not like the [1980s] when the Cocaine Cowboys were around and people brought suitcases of money to closings,” he said. “It’s been a non-issue so far for real people. It could change tomorrow after this thing goes into effect but for now, it’s a non-issue.”