A Focus on Residential Real Estate and Money Laundering

The Financial Crimes Enforcement Network announced the issuance of revised Geographic Targeting Orders. The threshold for reporting has been reduced down to $300,000 for all-cash purchases of residential real estate. The geographic scope has been expanded to now include nine cities: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

The GTO requires U.S. title insurance companies to identify the natural persons behind all-cash purchases of residential real estate over that dollar threshold in those markets.

“All cash” means “[s]uch purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, a funds transfer, or virtual currency.”

I have no problem with virtual currency purchases having to be reported when used by a company buying residential real estate.

I think that threshold is going to be too low for those jurisdictions and overwhelm the FinCEN reporting structure.

I’m speaking a bit from personal experience. The GTO now covers my town. The definition of “Boston” includes all of Middlesex and Suffolk County. Suffolk is Boston proper and its various neighborhoods. Middlesex County, I assume, is targeted to Cambridge. But Middlesex county includes over fifty towns, stretching from Hopkinton, to Newton, to Ashby to Lowell.

There are lots of old houses and lots of developers buying those old houses and fixing them up. Like any good business, they use entities to limit liability and to meet lender single-purpose entity requirements.

Almost any residential purchase ends up using a check to cover part of the final purchase price. I expect the GTO will sharply increase the reports flowing into FinCEN. More so than expected.

I just think the GTO is too broad geographically and the dollar amount is too low. That can be fixed.

The GTO is effective. A study found a 95 percent drop in how much cash shell companies and other corporate entities spent on homes. The decline began immediately after the fist GTO rule took effect in March 2016. Before the rule, corporate entities bought an average of $111 million worth of homes with cash in Miami-Dade per week, or 29 percent of all residential transactions, according to the study. But almost immediately after the reporting requirement began, that number plummeted to $5 million per week, or 2 percent of all transactions.

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