New US rules try to make it harder for criminals to launder money by paying cash for homes

By FATIMA HUSSEIN

Updated 4:25 PM EDT, August 28, 2024

REHOBOTH BEACH, Del. (AP) — The Treasury Department has issued regulations aimed at making it harder for criminals to launder money by paying cash for residential real estate.

Under rules finalized Wednesday, investment advisers and real estate professionals will be required to report cash sales of residential real estate sold to legal entities, trusts and shell companies. The requirements won’t apply to sales to individuals or purchases involving mortgages or other financing.

The new rules come as part of a Bi den administration effort to combat money laundering and the movement of dirty money through the American financial system. All-cash purchases of residential real estate are considered a high risk for money laundering.

The Treasury’s Financial Crimes Enforcement Network, also known as FinCEN, will administer the rules.

Money laundering in residential real estate can also drive up housing costs – and rising home prices are one of the big economic issues i n this year’s presidential campaign. A 2019 study on the impact of money laundering on home values in Canada, conducted by a group of Canadian academics, found that money laundering investment in real estate pushed up housing prices in the range of 3.7% to 7.5%.

Under the new rules, the professionals involved in the sale will be required to report the names of the sellers and individuals benefitting from the transaction. They will also have to include details of the property being sold and payments involved, among other information.

Treasury Secretary Janet Yellen said in a news release that the new rules address some of the nation’s biggest regulatory deficiencies.

“These steps will make it harder for criminals to exploit our strong residential real estate and investment adviser sectors,” she said.

Ian Gary, executive director of the FACT Coalition, a nonprofit that promotes corporate transparency, called the rules “much-needed safeguards” in the fight against dirty money in the U.S.

After years of advocacy by lawmakers, anti-money laundering experts and civil society, the era of unmitigated financial secrecy and impunity for financial criminals in the U.S. seems to finally be over,” Gary said.

Some industry representatives welcome the new rules.

Tori Syrek, a spokesperson for the National Association of Realtors, said FinCEN’s final rule is a pragmatic approach to combating money laundering and other crimes. “Bad actors are exploiting the current vulnerabilities,” Syrek said. “FinCEN’s final rule is a pragmatic, risk-based approach to combating money laundering and these other crimes.”

The Bi den administration has made increasing corporate transparency part of its overall agenda, including through creating a requirement that tens of millions of small businesses register with the government as part of an effort to prevent the criminal abuse of anonymous shell companies.

I was under the impression that real estate was not a high risk investment. I also believe the government forced 1099's for reporting received monies.

Question for Ken -

I am thinking that is someone has a simple $150,000 home for sale if I would offer them $151,000 ask for a $1,000 sellers assist (To justify the slight over payment) and tell them that you have only $149,000 in cash.

It just sounds like a slight expansion again of the Geographic Targeting Order's (GTO's) that FinCEN has been handling for many years here. In a cash purchase the title co has to report the sale to FinCEN naming the natural person behind the entity.

In my area the limit was for cash sales $300k or more required the reporting. That article makes it sound like there is no reporting floor now. These GTO's were put in place around select areas of the country (Miami, NY, Texas, California etc) more than a decade ago and they have been expanding their reporting requirements geographically and increasing the reporting requirements every time they renew the GTO's.

There has never been a time when govt has outmaneuvered people wanting to do something.

Just a few examples: smuggling, one of the oldest things. The second oldest trade. Prohibition. Illegals swarming across the border. Drugs. Money laundering. Gambling. Porn. Loan sharks. Speeding in your car.Election interference Bribes.And on and on.

Heck, they are in on it most of the time.

If they mention it, they already did it.

NE- noone is monitoring that transaction but since the deed is filed it can be checked later.

I have bought houses cash, but there is always a paper trail since it comes out of my bank account.

Nowadays I always have to wire the funds to make it happen. I am not fond of that as it takes too much time since my CU doesn't do it often.

They always have to get the binder out that says Wiring Instructions and go step by step.

I also get charged $12 for a wiring fee. They always ask if that is going to be a problem. Last house I bought was 100k, which is big bucks for me, and they wanted to be sure that $12 wasn't going to break me.

Paid off a small loan a couple years ago. Was down to 18k and change. I walked into the small bank that I had the loan with to get instructions on how to do it. They said I could use a personal check. I did and was out of there in no time.

When I negotiate purchase of a place, after the sales price is establish, my next question - now that we know what price you will accept, how big of a discount will you give me if I pay cash. I explain that there would be no worries about appraisal or the appraiser finding some issue with the property that they would have to fix

I found an even bigger scam perpetrated by the Los Angeles Department of Education. They target large parcels up for sale. They send a letter of intent to possibly purchase said property. Then they allow someone else to buy it. In one case it was Robert Selleck, the father of actor Tom Selleck.

Then after Robert Selleck paid the tenants off to re-develop the property, they Department of Education send Mr. Selleck notice, they plan to "maybe" build a school on site.

Then Roberts project comes to a halt, costing him monthly expenses like the Mortgage, Interest, Taxes plus insurance. Like $75,000 a month. After three months he demands the Dept of Ed to finalize their purchase or release him, and allow his project to continue.

So Mr. Selleck takes the Dept of Ed to court. The Dept tells the Judge, "We can hold up the project up to 9 years while we decide". Mr. Sellect says, at 75 grand a month, I can't wait 9 years, or spend 8 million while they decide. The judge asks Mr. Sellect what was he planning to build on that property. He responds, nothing too important, only a Senor living facility, a local Market, shopping center with people needs as tenants. You know judge, like my other projects?! The judge rules the Department of Education has 30 days to complete the purchase or then after that, Mr. Selleck has the protection of the court never to be harassed by any City or County Clowns trying to extort anything again from Mr. Selleck.

I think there is a difference in the meaning of "cash". Most folks think of green pieces of paper with someone's photo in the middle and numbers on the corners. That's not what a "cash closing" is. As stated by several above, no settlement agent is going to accept a brown bag of paper money. The meaning of a "cash" deal is no loan involved. Like above, if you handle everything yourself paper money is between buyer and seller but a through a settlement agent? I'd say, never say never, but "never" going to happen.

A cash deal for me? I go to the bank draw off one of my LOCs and purchase a property free and clear. Then after the title is recorded in about a week, I take the home over to banker and he puts a loan on the place. With that cash, I pay off the money owed on that LOC.

If the cash discount is greater than $4,800, it makes sense to draw on the LOC and do a second in house bank closing. They are only adding a mortgage to the place and not giving a new deed.

I just now accidentally bought a house on auction dot com and it has to be cash.

Time for me to go have lunch with my private lender.

I always thought the challenge with money laundering was converting the cash that flows from users up the food chain, to money in the bank or tangible assets. Thus "cash sales" should mean green paper money. In Ohio, funds for all RE sales have to be sent via wire, which presumably would stop laundering. Not sure how revelaing the entity would make a difference.

Interestingly, you CAN pay cash for properties purchased at sheriff's sales. I see that as a pretty big loophole....

Good point about the loophole.

One way to do a true "Cash" purchase (i.e. brown bags full of green paper) would be through an attorney. There is no law that says all real estate transactions must process thru a title company. Back before Title companies were ubiquitous (there's your $10 word for the day), attorneys often did the title search, prepared the deeds, and recorded them.

A C+ in law school attorney who is having a little trouble getting his law practice off the ground might be enticed to overlook the nature of his clients if there was an extra few thousand $$$ included in a second paper sack that says something to the effect of "No questions asked."

I think the US Treasury has been watching too many movies.

The cynic in me thinks this is all to help distract the public from the devalueing of the US dollar.

We have purchased at least three with actual cash. All three were fairly cheap, worn out houses that needed complete rehab.

The third one the lawyer and RE agent almost stroked out. It was maybe $25k? Ever since we do certified check.