Alert
05.20.2019

On May 14, 2019, the Financial Crimes Enforcement Network (FinCEN), extended a geographic targeting order (GTO) that requires title insurance companies to report qualified real estate transactions, known as, covered transactions, in certain geographic locations. The GTO was originally issued in June 2016. The stated goal of the renewed reporting requirement is to detect the “purchase of residential real estate by persons possibly involved in various illicit enterprises,” which will aid in “ tracking illicit funds and other criminal or illicit activity. . . .” The renewed GTO is effective through and including November 11, 2019.

The GTO applies to several locations, all of which are metropolitan areas. Some notable locations include South Florida, the greater New York City area, Las Vegas, Chicago, and several large California cities.

A title insurance company’s obligation to report a transaction is only triggered if the purchase is (1) an all cash transaction (including a check, money order, virtual currency, or other means not involving financing), (2) for residential real estate, (3) equal to or greater than $300,000, and (4) made by a legal entity. A legal entity is defined by the GTO as “a corporation, limited liability company, partnership or other similar business entity” formed under the laws of any domestic or foreign jurisdiction.

When a title insurance company’s reporting obligation is triggered, the company must file a report with FinCEN within 30 days of the closing of the covered transaction. The report must include the legal entity making the purchase, the individual responsible for representing the legal entity, and the beneficial owner(s) of the legal entity, among other detailed information about the parties involved in the all-cash transaction. A beneficial owner is anyone who, directly or indirectly, owns a 25% or greater interest in the legal entity. Additionally, the report must include a currency transaction report, which is a detailed report of the parties and third parties involved in the financial transaction.

The original impetus for the creation of the GTO was likely due to condo sales in Miami-Dade County. It appears that the implementation of the GTO has had the desired effect. Per the Miami Herald, a study undertaken by the Federal Reserve Bank of New York and the University of Miami found that “opaque 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.”

To see the entirety of the reporting requirement to be undertaken by title insurance companies in covered transactions, please click here.

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