Feds Go After Foreign Luxury Condo Buyers Feds Go After Foreign Luxury Condo Buyers What the New Regulations Mean for Boards By Tom Lisi

The U.S. Treasury Department announced in January that it will begin to track illicit cash purchases of luxury condos in New York and Miami. In New York, the new regulations will apply to cash transactions of $3 million or more. The federal agency cited a New York Times report last year that detailed how deep-pocketed individuals from overseas are buying up luxury residential real estate in Manhattan as a safe place to park their cash.

The influx of foreign money has helped to sustain a boom in luxury condo developments that only very recently has shown signs of cresting. With the federal government nosing around, do condo boards need to be cautious with these international buyers who use Manhattan high rises as their savings account in the sky? The answer is, well, no.

Follow the Money

“There’s not a lot of direct impact on boards of buildings,” says Marc Landis, managing partner and real estate department chair of Phillips Nizer LLP in New York City. Boards themselves are not involved in the sale of a unit. Instead, the onus of the Treasury’s new regulations falls on the buyer, who is subject to money laundering criminal penalties, and the title company, which reports the sale. “The title companies have to act, meaning they’re the police officers. They have to do the revealing in the document,” added Adam Leitman Bailey, founding partner of the Manhattan-based law firm of Adam Leitman Bailey P.C.

The federal order (the Treasury does not call it a “regulation”) goes after a niche target if there ever was one. The words “mortgage” or “loan” have no place in this drama. The culprit is money orders: cashier’s checks, traveler's checks, and yes, actual cash. “It does happen. I’ve had closings where they go in a separate room with bags. Remember, all these properties are over $3 million,” says Bailey.

It’s not only the traceless cash that the Treasury sees as a problem, it’s also the nameless owners. Rather than simply wire transfer money to the title company, many foreign buyers set up limited liability companies, so they don’t have to divulge their identity.


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