In recent years the New York real estate market has seen an influx of foreign capital. Back in March 2015, the New York Times detailed how many non-U.S. residents use shell companies and other corporate entities to purchase high-end Manhattan properties anonymously. While there is nothing wrong with purchasing real estate through a shell company, there have been concerns these cash-only deals may represent a front for illegal money laundering activities.
To that end, on January 13, the federal Financial Crimes Enforcement Network (FinCEN) announced it was taking steps to track certain real estate deals in New York and Miami. FinCEN is an agency within the U.S. Department of the Treasury that basically serves as an intelligence hub for financial regulators. FinCEN itself says its mission is to “safeguard the financial system from illicit use and combat money laundering and promote national security.”
FinCEN Issues “Geographic Targeting Order”
In its January 13 announcement, FinCEN said it will “temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay 'all-cash' for high-end residential real estate in the Borough of Manhattan.” The phrase “all-cash” in this context means the buyer is not using bank or mortgage financing to purchase the property. The FinCEN statement does not explicitly define “high-end” real estate.
The New York Times elaborated that FinCEN's order was “part of a broader federal effort to increase the focus on money laundering in real estate.” Law enforcement agencies plan to put greater emphasis on “investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.” FinCEN's director, Jennifer Shasky Calvery, told the Times such shell sales may allow certain individuals to use Manhattan real estate “as safe deposit boxes” for gains earned in illegal activities outside of the United States.
For now, the FinCEN order only targets all-cash sales in Manhattan and Miami-Dade County in Florida. The order specifically applies to title insurance companies, which must record and report the “beneficial ownership information” of a covered transaction to FinCEN. But FinCEN was careful to note this should not be construed as a suggestion that the title insurance companies themselves are doing anything wrong. The order is also limited in scope (for now), as it is set to expire in August.
Need Legal Advice on a Real Estate Matter?
While the thought of expanded government surveillance of real estate transactions is understandably of concern to many New Yorkers, this particular order should not affect the day-to-day activities of most of us. In other words, if you sell your house or condo tomorrow, you will not be reported to FinCEN as consequence of this particular order. Keep in mind, most people purchase their homes through a mortgage, and such loans are already subject to a complex web of state and federal regulations.Indeed, even a routine real estate sale can involve any number of legal issues. An experienced New York real estate attorney can help you. Contact the offices of Nisar & Mason, P.C. today to speak with an attorney right away.