Purchasing Residential Real Estate for Cash? Your Purchase May Trigger Government Inquiries

In its continuing effort to crack down on the use of shell companies to launder money and conduct other financial crimes, the US Financial Crimes Enforcement Network (FinCEN) is renewing an order that obligates title companies to ascertain and report the beneficial owners of limited liability companies and other entities that purchase residential real estate (generally single-family homes, townhouses, condominiums, coops, and apartment buildings of up to four units). The order does not apply if the purchasing entity is using loan proceeds from a financial institution that is required to maintain an anti-money laundering program and is obligated to report suspicious transactions. 

The order applies in designated jurisdictions where FinCEN has determined there is greater risk of illicit financial activity. These jurisdictions include Cook County, Illinois and major U.S. metropolitan areas in California, Colorado, Connecticut, Florida, Hawaii, Maryland, Massachusetts, Nevada, New York, Texas, Washington, Virginia, and the District of Columbia. 

Purchasers acquiring residential properties for cash through limited liability companies and other entities should be aware that title companies may ask for detailed information on the ownership of those entities. While the FinCEN order does not impose any reporting requirement on purchasers themselves (other than to provide required information to title companies), reporting by title companies can trigger government inquiries into a purchaser’s source of funds. A copy of the FinCEN order can be accessed here.