The outlawing of anonymous condo ownership in New York shocked the very lawmakers who passed it.
And now the equally shocked real estate industry is trying to undo it.
“We have to make noise,” said real estate attorney Adam Leitman Bailey, who is organizing an effort to exclude New York City from the law. “If we don’t make noise, nothing will happen.”
It might be too late, given the suspicion surrounding multimillion-dollar purchases of apartments by unnamed buyers. One co-sponsor of the legislation, State Sen. Liz Krueger, said more transparency in real estate — even if mandated by accident — was a positive step.
“I think it’s a good idea,” the Manhattan Democrat said. “Why should an LLC be able to hide?”
Krueger admitted that when she read a memo saying the bill would require LLC owners to identify themselves in transactions involving one- to four-unit buildings, she thought it would simply codify measures already in place in New York City and apply them statewide.
But after Gov. Andrew Cuomo signed it into law September 13, Krueger was surprised to see it interpreted to include all residential condos in New York — and to make owners’ names available to the public through freedom-of-information requests. (The existing disclosure rules in New York are not subject to FOIL requests or public databases.)
To clarify how the law will affect New York City, The Real Deal contacted lawmakers, attorneys and the city and state finance departments. What emerged was a chaotic portrait of misinformation and confusion about the law, which drew little attention when it passed, but now has real estate professionals scrambling to understand its implications.
But a consensus has emerged that it is far more sweeping than its authors intended.
The language in the bill says it applies to deeds for “residential real property containing one- to four-family dwelling units.” However, guidance issued Sept. 27 by the state Department of Taxation and Finance specified that it included residential condos, without saying how that interpretation was made.
“The only way I could come up with it is it says one to four families — and one condo is one family,” said Leitman Bailey, who claimed he had been in contact with multiple lawmakers connected to the bill who said they did not intend for it to apply to New York condos.
In a September interview, co-sponsor Sen. Alessandra Biaggi, a Bronx Democrat, told TRD the law only applied to properties with one to four units. The bill’s chief sponsor, Democratic Sen. James Skoufis, did not respond to requests for comment.
Public agencies have also been coy. When asked how and why the law was interpreted as it was, the State Department of Taxation and Finance referred TRD back to lawmakers. The city Department of Finance declined to answer a series of questions and instead provided a link to guidance published Oct. 11.
Its Cuomo administration counterpart, however, did clarify that disclosures would be subject to FOIL requests in New York City, meaning journalists and others parties could conceivably get the names of anonymous buyers.
Stuart Saft, a partner at Holland & Knight, said this would spook celebrities and high-profile buyers who rely on LLC ownership for privacy. Furthermore, he argued, it would deter investment in residential real estate.
“We can’t continue to develop half-a-billion-dollar projects if we’re going to be required to disclose the identity of anybody who has touched it,” he said.
It’s an odd possibility given that the bill was designed to tackle an issue that had little to do with New York City. It was passed after a six-month investigation into code enforcement that focused on cities and towns including Albany, Newburgh, Mount Vernon and Ramapo. The investigation found that problems posed by abandoned homes were amplified when the owners were unknown.
After the bill was signed, Skoufis said it would “rip the mask off of these anonymous LLCs that continue to purchase massive amounts of real estate in the Hudson Valley.”
In New York, where real estate attorneys and brokers were reeling from changes to the rent law, the bill went largely unnoticed. Leitman Bailey said he was not aware of it until it was passed.
On Oct. 3 the executive vice president of the New York State Land Title Association, Robert Treuber, sent a letter to the state tax department complaining that it was “impractical, if not impossible” to meet the requirements of the law.
“Almost every newly constructed condominium is in the name of an LLC,” he wrote. “Many of these ownership structures involve REITs, retirement funds and publicly traded corporations. A sponsor is not realistically capable of listing all of the shareholders of a REIT or publicly traded corporation, which may consist of hundreds of thousands of shareholders, some of which may be funds themselves.”
Because of the law, he claimed, closings had been delayed, causing buyers to lose mortgage commitments. Making matters worse, county clerks were offering conflicting interpretations of the law. “We welcome the opportunity to discuss with you the issues that we have raised, possible remediation and ultimately changes to the law,” he wrote.
The Real Estate Board of New York is also looking to start a dialogue. “We support the original intent of this law, to address abuses in the Hudson Valley area,” said REBNY’s Zachary Steinberg in an email. “We look forward to working with lawmakers to ensure these goals are accomplished without creating a chill on residential transactions across the state.”
Contact Sylvia Varnham O’Regan at [email protected]