Friday, January 15, 2016

Federal Government Investigates All-Cash Luxury Real Estate Deals

The federal government announced this week that it will soon monitor and investigate all-cash purchases of luxury residential real estate in excess of $3 million in Manhattan and in excess of $1 million in Miami-Dade County for money laundering and other illicit activity.

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, will lead the investigation. The investigation is targeting all-cash luxury real estate purchases because many such purchases are currently being conducted through “shell” companies used to shield the identities of natural persons and hide assets in a transaction. FinCEN’s Geographic Targeting Order (GTO), which is effective from March 1, 2016 through August 27, 2016, will require title insurance companies to identify and report natural persons behind these shell companies so that law enforcement investigators can use that information to weaken the ability of individuals to disguise their identities in money laundering schemes.

Since 2006, FinCEN has worked to establish an accountable mortgage industry by conducting studies regarding suspected mortgage fraud and money laundering and by issuing orders of investigation for certain financial institutions and transactions across the country.

FinCEN Director Jennifer Shasky Calvery declared that “cash purchases present a more complex gap that we seek to address.” The current investigation of luxury residential real estate will assist FinCEN in further establishing a more transparent system to avoid another financial crisis in the future.

Though currently temporary, the GTO may be extended into next year and expanded to include additional cities and counties. 

Wednesday, January 13, 2016

FIRPTA Withholding Tax Rate Increased 5%

On December 18, 2015, the Protecting Americans from Tax Hikes Act (PATH) was signed into law, amending, among other things, the Foreign Investment in Real Property Tax Act (FIRPTA). The most significant change is that there has been an increase in the withholding rate from 10% to 15%. What this means is that the buyer’s attorney will withhold 15% from the purchase price to a foreign seller and submit this amount directly to the IRS. The foreign seller will now walk away with 15% less (rather than 10%) from sales of U.S. real property interests but may be entitled to a refund, at least in part, if its income tax is less than the 15% that was withheld from the purchase price.

The increase to 15% also applies to distributions by certain domestic corporations to foreign shareholders and distributions by domestic or foreign partnerships, trusts, or estates. However, the 10% withholding rate still applies to personal residences that have a purchase price of less than $1 million.

The increased withholding tax rate ensures tax compliance by a foreign person or entity by offsetting any tax owed on a sale of real property. Planning ahead can allow a foreign seller to either reduce the time that the withheld funds are held in escrow, or eliminate the requirement to withhold any sale proceeds.

The seller’s attorney can make an application to the IRS for a Withholding Certificate, requesting a reduction in the percentage withheld from the sale, based upon a showing that the seller’s maximum tax liability is below 15% of the purchase price. If this Withholding Certificate is approved, the buyer’s attorney, instead of the IRS, holds the funds in escrow; which can greatly expedite the seller’s access to the funds. Alternatively, a foreign seller may be exempt from withholding all together. This determination depends upon a list of reasons; a common reason is if the property is a personal residence and the purchase price is $300,000 or less.

The increased withholding tax rate is effective for dispositions occurring on or about February 16, 2016, which is 60 days after PATH was signed into law.

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Friday, January 08, 2016

NYREJ - Q & A with Lieb, managing attorney at Lieb at Law

The New York Real Estate Journal recently interviewed Andrew Lieb, Esq on technology and legislative trends.

Read the full article here.

Direct Negotiations in Co-Brokered Flat Fee MLS Real Estate Impermissible by Regulation

Flat fee MLS is a trend where a homeowner can pay a small fee (typically around $300), to list their For Sale By Owner home (referred to herein as “FSBO”), on the Multiple Listing Service (referred to herein as “MLS”). As a result, the homeowner can enjoy the best of both worlds in avoiding an approximate 4 to 6 percent commission, while nonetheless exposing their property to all of the clients and customers of licensed real estate brokers/brokerage firms throughout the region. However, the FSBO homeowner cannot directly place their home on the MLS on Long Island, but instead must pay a flat fee MLS vendor, who is also a real estate broker/brokerage firm (referred to herein as “MLS vendor”) for the privilege of using the MLS because only licensees of the service can list on the MLS.

Read the full article, written by Andrew Lieb, Esq. published in The Suffolk Lawyer

Wednesday, January 06, 2016

Making Home Affordable - New Handbook Available - Version 5

To access the new Handbook for MHA, inclusive of HAMP and HAFA, click here. While reviewing the Handbook you should be aware of the case of US Bank v. Sarmiento wherein the Court held that the statutory good faith standard for a CPLR 3408 Foreclosure Settlement Conference is whether the "totality of the circumstances demonstrates that the party's conduct did not constitute a meaningful effort at reaching a resolution", including compliance with the Handbook. To review the case, click here.

This Handbook is the rules for banks / servicers to modify mortgages, so pay careful attention to detail and make sure that they comply.