U.S. Department of the Treasury Requires Good Funds Wires

In an effort to identify money-laundering schemes, the U.S. Treasury Department Financial Crimes Enforcement Network (FinCEN) has issued a Geographic Targeting Order (GTO) requiring all title insurance companies to identify the names of individuals involved in corporations, LLCs and other legal entities that make all-cash purchases for high-end residential real estate.

Real estate purchases may be delayed due to expanded U.S. Department of the Treasury (USDOT) orders.

USDOT has been concerned that all-cash purchasers of high-end residential properties are using LLCs or other entities to hide assets and identities. Its Financial Crimes Enforcement Network (FinCEN) has been working on ways to reduce this practice.
Beginning Monday, August 28, 2016, FinCEN expanded their Geographic Tracking Orders (GTOs) to include Los Angeles County, the San Francisco Area (San Francisco, San Mateo, and Santa Clara Counties), and San Diego County.

The threshold reporting requirement for these counties is $2,000,000. GTOs have also been extended and expanded to all five boroughs of New York, Miami-Dade, Broward, and Palm Beach Counties in Florida, and Bexar County, Texas. FinCEN acting director Jamal El-Hindi stated “The information we have obtained from our initial GTOs suggests that we are on the right track. By expanding the GTOs to other major cities, we will learn even more about money laundering risks in the national real estate markets, helping us to determine our future regulatory course.” (GTOs can be found at www.fincen.gov/news_room/.)
What does this mean to you and your clients?

Effective Monday, all transactions of 2 Million Dollars or more must be reviewed to ensure compliance with the new GTOs. The order states that title companies must report the transaction details with FinCEN if structured in certain ways. Here is an explanation of the conditions that will trigger the reporting requirement:
(1) The purchase of Residential property of $2,000,000 or more in San Francisco, Santa Clara, San Mateo, San Diego and Los Angeles counties of California; and
(2) Purchase is made without a bank loan or other similar form of external financing; and
(3) The Purchaser is a Corporation, LLC, Partnership or other similar business entity; and
(4) Any portion of the purchase price is made by Cash, Cashier’s Check, Certified Check, Traveler’s Check, Personal or Business Check, or Money Order in any form.

If all four of the conditions above exist, escrow and title will need to document and report the ownership interests of all persons within the business entity. Here is an example of the information title will request from the buyer:
1) The identity of the individual primarily responsible for representing the Purchaser.
2) The identity of the individuals who directly or indirectly own 25% or more of interest in the Purchaser. (if an LLC the name, address and taxpayer ID number for ALL members must be provided)
3) Copies of identifying information such as Driver’s License, Passport or other similar identification and taxpayer ID numbers for all individuals in 1 and 2 above.

It is easy to anticipate that the time needed to collect the required documentation will likely cause delays in the close of escrow.
Advice from Guardian Title is to encourage clients to utilize wire transfers for all transactions. (If all funds are wired then the reporting requirements are not triggered.) If a business entity uses any negotiable instrument (a cashier's check, etc) for any portion of their purchase funds the reporting requirement is triggered. This includes good faith deposit funds delivered when escrow is opened.
Be aware of this requirement when preparing offers. If your buyer will need additional time to produce the required documentation please include the additional time in the terms of the offer.

FinCEN Forms

Developed in partnership with the American Land Title Association, individuals can use these fillable .PDF questionnaire forms to determine whether a transaction falls under reporting obligations and Information Collection Form:

Real Estate Professional FinCEN Infographic

Intended for title companies to distribute to real estate professionals with which they are in contact, this infographic quickly breaks down the basics of the FinCEN Geographical Targeting Orders: CLTA FinCEN Real Estate GTO Infographic.

For more information:
http://www.realtor.org/articles/fincen-expands-anti-money-laundering-efforts-for-high-end-real-estate-transactions
https://www.fincen.gov/news_room/nr/pdf/GTO_Phase_2_FAQs%20_081916.pdf
http://www.clta.org/page/FinCEN