New Reporting Requirements from the U.S. Treasury Department

Money laundering is a major problem for the US Government, and real estate transactions are sometimes used to execute money laundering schemes. As a result, the US Treasury Department has issued new reporting requirements in the Bay Area and Southern California, some of the hottest real estate markets in the country. As a California home inspection company we keep apprised of changes in our local real estate markets and we try to share new information with our clients. In the following article, David Hamerslough will discuss the new Geographic Targeting Order issued for Santa Clara, San Mateo, San Francisco, Los Angeles and San Diego Counties.

By David Hamerslough

In July of 2016, the Treasury Department issued a Geographic Targeting Order (“GTO”) requiring title insurers and escrow companies handling transactions in Santa Clara, San Mateo, San Francisco, Los Angeles, and San Diego Counties to collect and report certain information on residential purchase transactions where (1) the purchaser is a corporation, limited liability company, partnership, or other legal or business entity, (2) the purchase price is $2 million or more and is paid without a bank loan, and
(3) the purchase includes using, in part, any form of currency or a cashier’s check, certified check, personal check, business check, or money order or funds transfer. The purpose of the program was to assist the government in detecting and tracing money laundering.

This government program expired earlier this year, but it has been extended and expanded, effective May 21, 2018. For qualifying transactions (i.e., those meeting the criteria set forth above), title companies will now be required to obtain an ALTA Information Collection Form (ICF). The form will be completed by the escrow officer for submittal to the title company. The title company may thereafter have to collect additional information and documentation in order for the title insurer to insure the transaction and for escrow to close. The transaction will not close and title insurance will not be issued without the ICF and any additional requested information. The ICF is in addition to the Statement of Information form that title companies typically require.

Some of the information that the title companies are required to report to the government include the identity of the individual signing the deed and the identity of anyone who owns 25% or more of the corporate entity purchasing the property. Other non-public information that has been required to be provided includes the actual owner’s passport or driver’s license number information.

While the federal government has indicated that it is extending this GTO program, all of the details and criteria for this extension have not been announced publically. All of us need to keep an eye on the details regarding this program to see if it is being expanded to other counties, whether the target sales price is going to be lower than $2 million, and whether there will be any other criteria. Any questions regarding a transaction and whether it might qualify should be directed to the escrow officer and Title

When I wrote about the initial GTO program, one question I had was what impact, if any, the program would have on the sale of high-end properties in the qualifying counties. I have not heard about any transactions that were significantly impacted or delayed because of the program. The extension of the program and, more significantly, the potential expansion of the qualifying criteria may impact more transactions in these and other ways. If you are involved in a transaction that meets any of the qualifying criteria, it is important to determine whether an offer that you are writing, or a pending transaction, is going to be subject to the program.

Buyers should decide prior to writing an offer whether they have any objections to providing the necessary information in a timely manner, what delays (if any) this may cause regarding the transaction, whether there will be any additional costs charged by the title company for collecting and providing the information, and whether the seller will entertain a contingency for this information to be collected, provided, and reported by the title company. The buyer should also consider the impact that any of the
foregoing may have on the close of escrow date that is proposed.

A seller who receives an offer that meets any of the criteria of this program needs to consider the same issues, whether they have been confronted by the buyer, and what delays (if any) may be caused in terms of closing escrow. A seller should also consider the potential for a cancellation by the buyer if the buyer is not aware of or is not willing to comply with the reporting requirements or if there is a very short close of escrow that provides insufficient time for the requirements of the program to be met.

Anticipating these issues and addressing them during the writing of an offer and through a counteroffer, if necessary, should assist in avoiding any surprises or delays during the transaction, as well as deposit disputes and/or claims for breach of contract in the event that they are not addressed. Be on the lookout for further details on what transactions will qualify, as at this time what additional counties may be included and whether a purchase price of less than $2 million will qualify a transaction for the
program. It is not known when all of the criteria will be made public.

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