High-End Home Buyers Will Find It Harder to Remain Hidden

Buying luxury real estate in the U.S. and keeping it a secret from the general public, as well as the government, could soon be harder to do. The Financial Crimes Enforcement Network (FinCEN) announced Wednesday that it will temporarily require U.S. title insurance companies to identify the people behind companies used to pay for high-end residential properties in all-cash deals in Manhattan and Florida’s Miami-Dade County. “FinCEN is concerned that all-cash purchases may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures,” said the U.S. Department of Treasury’s agency in a statement announcing its action to combat “money laundering in the real estate sector.”

The so-called Geographic Targeting Orders (GTO) will be in effect for 180 days beginning March 1 and running through August 27, 2016. Cash home sales in the U.S. are at their highest level since March 2013 after nearly two-and-a-half years of annual declines. These kinds of transactions made up 38.1% of all single-family house and condo sales nationwide in November, according to real estate information company RealtyTrac. In Manhattan, cash transactions represented 63.34% of all residential sales in November. In Miami they accounted for 62.62%.

Keeping the purchase of a luxury real estate asset in the U.S. private has up until now been an easy, and unregulated, process. Individuals who wish to conceal their identities and maintain sufficient cash in the U.S. banking system have turned to LLCs (Limited Liability Company), corporations or trusts. These legal and financial structures, which are layered or wholly owned and managed by an offshore entity, allow prospective property buyers to keep their names off public records. Working with an attorney and an accountant, buyers can also contract the services of companies to assist them in forming corporations within the U.S. or outside the country. The process, as advertised by Corporate Creations of Palm Beach Gardens, Florida, starts by simply completing an online form, which takes less than 10 minutes. Opening a corporation in the state of Delaware, for example, takes just 24 hours and costs the buyer only $599, said a representative at Corporate Creations. For real estate attorney Antonio Martinez of Florida Secured Title, in Coral Gables, the new, albeit temporary regulations, could give some potential buyers pause, however. “This temporary rule may cause some buyers in the high-end segment who specifically demand the ultimate levels of privacy to reconsider the affected markets as an available opportunity for investment and a home,” said Martinez. “Alternatively they may otherwise decide to purchase in the affected markets without utilizing any title insurance company to avoid the reporting rule.” The impact of the FinCEN’s GTO on the luxury market is yet to be seen, but brokers are concerned about effects beyond the intended target. “I do not believe it’s fair to penalize the majority by faults of the minority,” Daniel de la Vega, president of ONE Sotheby’s International Realty in South Florida, said. “There are many people with no criminal history who would simply like to keep their purchases private. This could be simply for privacy purposes of an athlete or entertainer, a Latin American buyer who could jeopardize the safety of their family in its country if his or her purchase is made public or even a local buyer who does not want people to know where they live.”

Write to Andrea López Cruzado at andrea.lopez@dowjones.com