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Treasury's New Disclosure Regulations For All-Cash Buyers Could Slow High-End Property Deals

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New government regulations that will force all-cash buyers in Miami and Manhattan to disclose their identities to the U.S. government could potentially create a slight cooling effect in the ultra-luxury market.

Announced Wednesday, the Treasury Department's new rules require certain title companies -- namely First American, Fidelity National, Stewart and Old Republic, known as the 'Big Four' underwriters -- to disclose to the government the names of buyers who pay all cash for properties over $1 million in Miami and over $3 million in Manhattan. Buyer names must be disclosed if their ownership of a property is at least 25%, according to the rules. The temporary regulations go into effect March 1 and end August 27.

Some observers say that illegitimate money may be diverted to markets outside the requirements, such as Los Angeles--at least for now. The regulations are widely viewed as simply the first step as Treasury attempts to crack down on criminals stashing illegally-gained cash in American real estate. "If they get the information they’re looking for then the order succeeded and they’ll continue and expand," said Marc Landis, managing partner and chair of the real estate practice at Manhattan's Phillips Nizer LLP. "If they don’t get what they’re looking for, they’re going to expand."

In Manhattan, where the ultra-luxury market has softened in recent months amid over-saturation, the new regulations could discourage some legitimate buyers who fear that a segment of their potential resale market--in particular, would-be buyers who are money launderers and criminals--might be spooked away.

Then again, money-launderers tend to be enterprising people with talent for identifying and exploiting loopholes. What would stop such an individual from simply paying someone else to be the straw buyer? "Shady people find other ways of getting things done. Let’s be real," said Samantha DeBianchi, a high-end broker in Miami and star of Bravo's Million Dollar Listing Miami.

The entire exercise could provide useful information to the government, even if the people disclosed aren't running criminal organizations. "I don’t believe it’s just the launderers. I think they’re looking for people who might be avoiding paying taxes," says Seth Kaplowitz, an attorney and lecturer at San Diego State University. "I think they’re looking at the lawyers, the title companies, the ancillary people and companies that assist in having these transactions take place."

As the announcement was made Wednesday representatives from the American Land Title Association, whose members include the title companies affected, were meeting with FinCEN, trying to sort out the specifics of exactly what must be reported, who must provide the information, and in what time frame. "Which leads to a barrel of other questions: How does this affect costs? Will it delay closings?" said Wayne Stanley, director of public affairs at the association. "Unfortunately we don’t have the answers on that yet."