The Feds are hunting down entities that are behind million-dollar home sales in the Miami-Dade and NYC areas. A new policy will be in place to crack down true owners; title insurance companies will now require shell companies that will pay $1 million or more in cash in the Miami-Dade area and $3 million or more for properties in NYC. Names of buyers will now be reported to the US Treasury Department, an article from the Miami Herald said.
This new system was formulated after it was speculated that dirty money has been used to purchase residential properties. Affluent home buyers located in South Florida usually use a network of domestic and offshore companies to avoid revealing their identities. Through a limited liability company, they can even take advantage of liability protection and tax breaks.
Since multi-million dollar home sales is huge business, South Florida real estate brokers are now worried about the crackdown's effects. In the Miami-Dade area, cash home deals accounted for 60 percent of home sales that are priced $1 million or higher.
The US Financial Crimes Enforcement Network or FinCEN has created a "geographic targeting order" that will be in effect from March 1 to August 27. This could even cover the entire country if it becomes successful in uncovering serious evidence of money laundering.
Jennifer Shasky Calvery, FinCEN director said, "We are focusing on the risk that criminals from around the world are going to launder their dirty money through residential real estate in the US."
"Our estimation is that 78 percent of homes around the nation are purchased with a mortgage, and our regulations already cover mortgage providers. What we don't have covered are the all-cash purchases and that's what we're trying to address."
Calvery also said that they would like to remain data-driven to understand the problem. She has also cited instances of criminals using dirty money in purchasing luxury real estate in Miami. Under the new rules, title companies will now need to investigate who is funding shell companies that spend cold cash on Miami homes. Results of these investigations should be reported to feds so that they could make their own investigation on possible money laundering. Identities of these buyers will be kept private.
Jeffery Rubinger, attorney at Bilzon Sumberg, is an expert in international tax law. He mentioned that international home buyers will surely be worried about the possibility of banks contacting their governments.
Also as these rules apply to corporations, limited liability companies, partnerships and similar business entities that are used as shell companies to purchase luxury real estate, these do not affect trusts which could pose as a way out.
The American Land Title Association on the other hand said it works closely with Treasury on real estate rules and considers them in all deals. CEO Michelle Korsmo said, "ALTA looks forward to continuing our work with FinCEN as our members implement this order to help prevent money laundering schemes and the illegal purchase of real estate in the United States."
