More Oversight is Coming!

About one year ago today, I wrote a post called “Changes are Coming – Be Prepared to Disclose Beneficial Ownership in 2021.” Although those changes (i.e. the requirement that all businesses disclose their beneficial owners in a federally run database) have not come to pass yet, they are still on the way – so keep an eye out in 2022.

The idea of the beneficial ownership disclosures is to cut down on the use of shell companies to launder money and avoid taxes — think, “Essential Consultants, LLC.” However, as beneficial as the “beneficial ownership” database will be, it’s certainly a step removed from the actual (alleged) laundering of any money. In other words, by the time a disclosure of ownership in a company is\will be required, the transaction that laundered the money is likely to be long completed (and unwinding it – much more difficult).

So, another piece of proposed regulation steps in to fill the void. Under the proposal, title companies would be required to disclose details of all cash real estate transactions. Although its unclear at the moment if there will be a disclosure threshold based on purchase price (i.e. all transactions over $300K must be disclosed) – there are some jurisdictions (mostly in California) that do have such a requirement already – so it wouldn’t be surprising if something similar was built into the new regulation. This disclosure is still coming after the transaction is closed, but much closer in time than a disclosure of beneficial ownership in a purchasing entity would be, especially if some of the proceeds need to be held in escrow to give the government time to follow up on any transactions of interest (as is the case when foreign entities purchase real estate in the US).

As attorneys who help clients with real estate transactions on a regular basis – we love cash deals – and this won’t change that. However, this is absolutely a regulation to keep on the radar as we move into 2022 because it will change the flow of cash real estate transactions, at the very least. We’ll keep you posted as we learn more.

Thanks for reading.

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