On July 22, 2016, the Financial Crimes Enforcement Network (“FinCEN”), an agency of the United States Treasury Department, issued a Geographic Targeting Order (“GTO”) directing Title Insurers and their agents (in California that would be Escrow Companies — whether they are separate entities or part of a Title Company’s operation) to collect and report information about certain residential real estate transactions where the purchase price was $2,000,000 or more. The purpose of that Geographic Targeting Order was to assist law enforcement and regulatory agencies in identifying potential money-laundering operations. That Order expired by its own terms earlier this year.
It has now been announced that effective May 21, 2018 the GTO has been reinstated but it has also been greatly expanded in its scope and coverage. ALL real estate transactions closing with a Title Company will require the ALTA Information Collection Form (“ICF”) to be fully completed by the escrow/settlement
agent, and returned to the Title Officer for review as soon as possible. If a pending transaction requires the Title Company to collect additional forms, information and/or documentation, the transaction will not close until all conditions have been fully met.
FinCEN requires Title Companies to collect information about certain transactions in specified geographic areas in accordance with the Bank Secrecy Act. If a transaction is required to be reported under any order issued by FinCEN, the Title Company must be supplied with a completed ICF prior to insuring the affected transaction.
The new rules mandate that Buyers complete the ALTA ICF provided by the Escrow Holder in residential sale transactions as part of an effort to obtain information about the Buyer in addition to what they usually do obtain in a “Statement of Information.” There is thus no need for real estate licensees to provide the ALTA form. However, for reference purposes only, that new form can be viewed at:
http://files.constantcontact.com/117c7f5e001/23cce97f-4e71-406c-a862-87c7a2a6219b.pdf
AS OF THE DATE OF THIS TIP, THE FULL GEOGRAPHICAL SCOPE AND/OR ALL OF THE RELEVANT CRITERIA FOR THE NEW FinCEN ORDER HAVE NOT BEEN MADE PUBLIC BY FinCEN.
The original FinCEN Order only applied to transactions involving residential real estate sale transactions with a sale price $2,000,000 or more in San Francisco, San Mateo, Santa Clara, Los Angeles and San Diego Counties. It now appears that this Order is being expanded geographically and may cover residential sale transactions in areas other than the original five (5) California counties and it is believed that the sales price merely needs to be $300,000 or more. It is not known when all of the relevant criteria will be made public.
What is known so far is that the FinCEN Order applies to transactions that meet all four (4) of the following criteria:
- The Property is residential, not commercial, property; and
- The Purchaser is a corporation, limited liability company, partnership or other legal or business entity, as opposed to people buying in their own name or in the name of their trust; and
- The purchase is made without a bank loan or without using a similar form of institutional financing that is required to have an anti-money laundering policy; and
- The purchase is made, at least in part, using any form of 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, or a funds transfer. Thus, if the other three (3) factors exist, payment of at least part of the purchase price using one of these methods triggers the obligation to complete the new ALTA form.
For transactions meeting all four (4) of the foregoing criteria, Title Companies are required to report to FinCEN within 30 days prior to the Close of Escrow some of the Buyer’s non-public personal information. This procedure is designed to identify the individuals behind the legal entity that is being used to purchase the Property. If this information is not provided by the representative of the purchasing entity prior to COE, FinCEN has instructed Title Companies not to close the transaction.
Broker Risk Management has been advised that some of the rules regarding this new program are subject to a federal confidentiality agreement and thus it is premature to create any type of Advisory to provide to Buyers and Sellers. Once further information is made public, we will create an appropriate Advisory. The purpose of this Weekly Practice Tip is to alert clients of Broker Risk Management that the FinCEN reporting requirements may impact several pending and future transactions.
PRACTICE TIP:
- Regardless of which principal you represent, if you are already involved in a sale transaction that you believe meets all four (4) of the criteria listed above, then immediately check with the Escrow Officer regarding whether or not the ALTA ICF will be required and work with the Escrow Officer to secure the necessary information.
- As a Listing Agent, if a Buyer presents an Offer which causes you to believe that all four (4) criteria above have been met, then urge the Seller to issue a Counter Offer specifying a time frame for the Buyer to comply with the new reporting requirements to avoid any delay in the Close of Escrow. Suggested sample language to achieve that is as follows:
“The person signing in a Representative Capacity for the Buyer shall complete and return to the Title/Escrow Company any and all information required to comply with the FinCEN Geographic Targeting Order within ________ [insert number] Days of receipt of Title/Escrow Company’s request for that information and shall cooperate with Title/Escrow Company so as to not cause any delay in the Close of Escrow.”
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.