The Federal Government is cracking down on shady anonymous buyers in NYC and Miami

By Virginia K. Smith | January 13, 2016 - 4:41PM

Shadowy real estate buyers have been quite a hot topic in the city recently—thanks in no small part to last year's blockbuster investigation by the New York Times—and now, it would seem the federal government is sitting up and taking notice.

The Treasury Department announced a new initiative "identifying and tracking secret buyers of high-end properties," per the Times, with a focus on all-cash transactions over $3 million. The program is starting out in New York as well as Miami-Dade County, two U.S. cities particularly notorious as havens for foreign buyers hoping to safely stash cash. “Repeated anecdotal information where we see criminals of different stripes putting money into real estate all suggest to us that this is an area we need to pay attention to,” said Treasury official Jennifer Shasky Calvery.

As part of the new initiative, title insurance companies will be required to "discover the identities of buyers," according to the Times, and disclose them to the Treasury, which will enter them into a database for law enforcement. This could have massive implications for the real estate industry, depending on the scope of enforcement, given that many buyers prefer anonymity or use of an LLC for reasons that have nothing to do with criminal activity.

"The purchasing of properties in an LLC has become common practice to safeguard the identity of buyers, who are often high profile and/or celebrity, where disclosure of address or financial circumstance could make them vulnerable from a safety, business or social standpoint," TOWN Residential CEO Andrew Heiberger said in a statement. "In these instances, it makes sense to afford buyers privacy. However, if buyers are using the shield of the LLC to conduct illegal activity, the new mandate is justified." Heiberger also noted that he didn't expect the investigation to uncover much in the way of criminal activity in the New York market, though if the Times' prior investigation is any indication, plenty of people with legal trouble (or worse) abroad are treating luxury New York real estate as something of a safe deposit box. 

All-cash, anonymous purchases are also popular with developers, as Wagner Berkow attorney Steve Wagner points out, as they don't want to tip off their competition to their buying strategies until the purchase is set in stone.

One potential fall-out from all this? An uptick in perfunctory mortgages (say, a $1 million mortgage for a $100 million purchase) for buyers hoping not to get flagged for an all-cash sale. "This may really help the jumbo mortgage industry," says Miller Samuel appraiser Jonathan Miller. 

"It's certainly easy enough to form another shell company and put a mortgage on a property [and stay anonymous]," adds Wagner. "Whatever the government does, there's going to be some smart person figuring out how to get around it."

That said, a lot remains to be seen about the exact nature of the enforcement here— particularly, whether or not the information uncovered by the Treasury will be made public. "If it's just going to be an investigation by the Treasury and its crimes unit and they're not required to publicly disclose information, that's not a huge change [to business as usual in real estate]," says Wagner. "The public disclosure is what would be a huge change."

For now, the Times article says the initiative is being piloted from March through August, and if enough suspicious money is turned up in the process, the Treasury department will look into creating permanent reporting requirements.


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