Fri, Jan 15, 2016

FinCen Order Could Slow Real Estate Deals Without Proper Due Diligence

In August, we released a white paper that analyzed the U.S. Department of the Treasury’s Financial Crimes Enforcement Network’s (FinCEN) proposed regulation to combat money laundering through shell companies; the rule would require banks, real estate professionals and others to identify and verify the natural person owner (aka beneficial owner) of real estate. The new rule could slow or stop deals unless the parties have due diligence ready.

FinCEN has moved forward. On January 13, FinCEN issued orders that require title insurance companies to identify the natural persons behind companies used to pay “all cash” for luxury residential real estate in Manhattan and Miami-Dade County in Florida. FinCEN stated it is concerned individuals attempting to hide their assets and identity may use all-cash purchases i.e., those without bank financing and thus bypass bank regulations to purchase high-end residential properties through intentionally obscured structures. To combat this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County. Specifically, title insurance companies will have to complete and file with FinCEN a FinCEN Form 8300.

On March 1, FinCEN’s order goes into effect and remains in place for six months. After that point, FinCEN may expand the effected geographic territory to include other urban areas with lucrative real estate markets, may transform the temporary order into a permanent mandate or may take further remedial action. FinCEN is not going away.

In the meantime, FinCEN’s order could slow or stop closings if due diligence is not available and ready for the title insurance firms in impacted deals. Title insurance companies may shift the burden of compliance to the seller’s agent, broker or lawyer and require these parties to provide the title insurer the identity of the beneficial owner.
Learn more about our analysis on FinCEN's new regulation.

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