My colleagues in the title industry—particularly in New York, California, and Florida—will by now be intimately familiar with FinCEN (Financial Crimes Enforcement Network) and their geographic targeting order.
This order requires title companies to 'pierce the veil' of an LLC and report to the Network the name of the ultimate buyer of the property, provided the purchase is all-cash, in certain areas, and above a certain dollar value.
The reasoning is simple: buying real estate with cash was the only really easy way for suspected foreign criminals to evade anti-money-laundering regulations, and by robbing these bad actors of their anonymity, the government believed they could prevent this.
I was skeptical, perhaps slightly embittered by the fact that this was yet another process for us to build out. How much of this was really going on, anyway?
Newly published research into this question has given us the first indications, and the results are staggering.
Researchers Sean Hundtofte (Federal Reserve) and Ville Rantala (University of Miami), found that in the geographies they looked at (NYC and Miami), anonymous transactions accounted for 10% of real estate spend, and that these transactions fell by 70% after the introduction of the FinCEN targeting order, representing an annual transaction volume of $45 billion.
This effect is so large, that the researchers were able to observe a drop in high-end house prices of 4.2%—bad news for realtors, but good news for homebuyers that now no longer have to compete with anonymous buyers willing to pay a premium for their secrecy.
Given this stark effect, it's likely that these targeting orders will increase, with the potential of them becoming law. In the meantime, title companies find ourselves in the strange position of enforcement, and it looks like we're doing a good job.