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In an attempt to quell money laundering in several U.S. cities, the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of Treasury, will temporarily require title insurance companies to report the identities of people using all-cash to purchase high-end homes.

Title insurance companies will need to report these types of transactions beginning August 28, 2016, and — unless the order is extended — will continue to report through February 23, 2017.

The affected counties include three in New York, Florida and Texas, as well as the following expensive California counties:

  • Los Angeles;
  • San Diego;
  • San Francisco;
  • San Mateo; and
  • Santa Clara.

In California, all-cash sales of $2 million or more need to be reported.

The requirement’s goal is to reveal the people behind “shell companies” who use large amounts of cash to purchase real estate. These shell companies might be legal, but they also might be hiding funds obtained illegally, which is what the FinCEN is interested in.

For instance, when purchasing a property through a limited liability company (LLC), the bank only requires the account holder of the LLC to be identified. Others with ownership interests in the LLC are of no interest to the bank. This dynamic makes an LLC a perfect place to park and hide money anonymously.

The reporting requirement was issued earlier this year, originally limited to counties in New York and Florida. But the success of the data collected so far has led the FinCEN to believe they will catch more financial criminals in other all-cash hotspots, like upscale coastal California. This also follows crackdowns by the Internal Revenue Service (IRS) on those with ownership in LLCs.

The title insurance company will use FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, to report the sale within 30 days of the transaction closing. The title insurance company will file Form 8300 using the Bank Secrecy Act E-filing system.

For most California real estate brokers and agents, it’s business as usual. The new requirement will impact very few transactions, since it is limited to very high-end properties and only to those buyers using all-cash. However, for those active in those markets, be sure to advise your affected clients to this increased scrutiny.

Questions? Read the full order here.

Posted by Carrie B. Reyes on journal.firsttuesday.us.



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