FinCen Targets Shell Companies in Real Estate Transactions

Mar 15th 2017

As of July 22, 2016, FinCen (the Financial Crimes Enforcement Network) is cracking down on anonymous real estate investors who attempt to purchase high-end residential properties by cloaking themselves in shell companies. New regulations require title insurance companies to disclose the names of any individuals involved in cash transactions for real estate above certain value thresholds in select markets around the United States.

According to FinCen’s statement to the press, the agency took action due to an increasing concern that many all-cash purchases for high-end estates were being instigated by people who wished to conceal their assets. Before FinCen’s General Targeting Order (GTO), wealthy buyers were able to hide their identities behind limited liability companies and other opaque structures.

The agency’s first step toward combatting anonymous cash purchases was issuing a GTO that only affected transactions in Florida’s Miami-Dade County and in Manhattan. The second GTO in July expanded the number of affected areas.

What Buyers Should Know

The expansion of the General Targeting Order actually went into effect in August. Since then, any purchase the meets FinCen’s criteria is defined as a “covered transaction” and is subject to more stringent rules on identity disclosure.

To see the comprehensive list of criteria that goes into defining a “covered transaction,” you should read the entire order issued by FinCen. Here’s a short summary:

  • The property must be for residential use only
  • The property is located in one of the selected counties in Florida, California, or Texas, or is in any of the five boroughs of New York City
  • The property’s sales price is at least as much as the designated threshold its location. The minimum price is $3,000,000 in Manhattan, $1,500,000 in the rest of New York City, and either $2,000,000 or $1,000,000 in the other regions listed in the GTO.

When a property meets the above criteria, FinCen now requires the issuing agent to receive sufficient information about all parties involved before they can sign off on closing. The purchased property will not be insured until the agent receives all required information and can review it.

It’s not clear at this time if the latest GTO is a permanent measure or one that will be rescinded pending future results.

FinCen said in its release to the press that it targeted title insurance providers as an important partner in their crackdown because these companies play a role in the vast majority of real estate purchases. This is particularly the case in high-end transactions.

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