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New Rule for Cash Real Estate Deals

Posted by Keith Darby on January 20, 2016
| 33 Comments

Many buyers of high priced real estate prefer to stay anonymous in their transactions. This has become especially common practice from foreign investors. However, a new order will require those who invest $1 million or more in cash for Miami real estate to make themselves known on record. The order is meant to avoid money laundering and stop illicit money from entering the market through real estate.

The problem has arisen from a large number of high priced real estate transactions conducted in cash being executed via a shell corporation. The rule will begin as a test run from March 1 to August 27 in NYC and Miami. Title companies will be required to disclose the true owner of a shell company. This is difficult because the shell corporations, or LLCs, are also not always in the name of the true buyer. Investors delegate their lawyer, or another person as a “nominee”. For this order, the Treasury is looking for the actual owners, which are referred to as the beneficial owners. These are the persons that receives a quarter or more of the equity interests. The title companies will be responsible for gathering a driver’s license or passport from each of these beneficial owners and transferring it to the Treasury department. The Treasury will investigate deals that are paid for in all cash and conducted via shell companies. They are aiming to determine how many transactions really do involve suspicious money and if permanent, country-wide requirements are needed to deter illicit investments.

Of any city in the country, Miami has the most cash sales. More than 50% of all home purchases made in Miami-Dade county last September were done in cash. Foreign investors are responsible for a large percentage of these cash purchases. Keith Darby, President of Rise Realty, says “This rule will make it harder to execute some deals. Investing in the U.S. will become less attractive to some and we may see transaction volumes decrease, especially in the markets that draw these investors, like Miami.”

 

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