(l-r) Diane Nobile, Christopher Zoller, and Anthony De Yurre. Courtesy photos

Publicly traded companies got a break from a federal mandate to reveal the names of people behind companies making big cash home purchases in major metropolitan areas such as New York and Miami.

The U.S. Treasury Department's Financial Crimes Enforcement Network exempted publicly traded companies from disclosure requirements imposed in 2016, although private companies still must comply.

FinCEN requires title insurance companies to report the names of people who control shell companies buying residential properties in a push to limit money laundering through the sale of high-end single-family homes and condominium units.

The disclosure rule covers companies paying $300,000 or more in cash for homes. Beyond Miami and New York, the geographic targeting order applies to Boston, Chicago, San Diego, San Francisco, Seattle and parts of Texas.

FinCEN extended the GTO for six months Nov. 8 while adding the publicly traded companies exemption.

The exemption should be good news for listed companies, which already are required to submit extensive disclosures to the U.S. Securities and Exchange Commission.

"I guess the folks at FinCEN think the publicly traded companies are known entities and therefore they can be followed," said Christopher Zoller, a broker-associate at EWM in Coral Gables.

The focus of the money laundering enforcement is limited liability companies that often are impossible to trace to individual owners. Many register in Delaware for its lax identification and public disclosure requirements for LLCs.

"Let's say you have a Delaware corporation that owns a Florida corporation that owns a corporation in the British Virgin Islands, which is owned by a corporation in Panama," Zoller said. "It's going to take you a long time to find out whose money is behind all this."

Many affluent buyers comply with the disclosures but still opt to buy homes through LLCs for security and privacy reasons, Zoller added.

Public Companies

Several publicly traded companies became big players in the single-family home market after the housing crash when they bought distressed homes at deep discounts in foreclosure and rented them out.

Areas in south Miami-Dade County, including Homestead, which were particularly hard hit by the foreclosure crisis, saw heavy transaction volume, Miami attorney Anthony De Yurre said.

Now that home values have rebounded, publicly traded companies are still in the business but growing mainly through mergers and acquisitions or by buying other companies' home portfolios, added De Yurre, a Bilzin Sumberg partner. The exemption for public companies could mean savings for them.

The public companies can cut costs with "less regulation and less legal hoops to jump through, and this could be seen as one of the things that could allow them to operate through efficiency and less legal framework," he said. "Doing that exercise for 20,000 [homes] if it was done on a cash basis, you could extrapolate the level of transaction cost that could be added."

One of the biggest publicly traded players in the housing market is Invitation Homes Inc., which has a portfolio of over 80,000 homes in 17 markets. It was created after the merger of the rental divisions of New York-based Blackstone Group Inc. and Starwood Capital.

Blackstone took Invitation Homes public in 2017 and sold over $1 billion in shares this year, according to a Housing Wire report.

Other big industry names are American Homes 4 Rent, a real estate investment trust based in Agoura Hills, California, and Front Yard Residential, another REIT based in the U.S. Virgin Islands.

Publicly traded companies tend to opt for single-family homes rather than condo units.

"The majority of the clients that I have that do this were buying single-family homes instead of having to deal with a condo association, and the condo association may have had an extra layer of fees and costs," De Yurre said.

Exemption Impact

Attorney Diane Nobile in Miami said the new exemption won't endanger the GTO's goals.

"If it was an exemption of the GTO, there had to be good reason for that," said Nobile, a partner at Saul Ewing Arnstein & Lehr. "There would be no reason to extend the GTO and make exemptions if it wasn't serving the overarching goal of the GTO."

She sees the potential for abuse by public companies "as too remote of a possibility."

The South Florida GTO had a "slight chilling effect" on cash deals but did not have a direct impact on Nobile's work, she added.

FinCEN originally imposed the disclosure requirement for cash deals over $1 million in Miami-Dade County and over $3 million in Manhattan but later lowered the dollar threshold to $300,000.

Instant Insights /

Publicly Traded Home Investors Get Reprieve From FinCEN Disclosure Rule

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