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Miami Realtors Divided on Impact of New Government Surveillance

by James McClister

Cash sales in Miami have fallen from their peak in March 2012, when they accounted for 70.3 percent of sales. But even with the decline, the city remains the perennial leader for all-cash transactions.

And that is the motivation driving FinCEN’s actions – to shed light on the illusive cash market.

“Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money launder,” Calvery said. “But cash purchases present a more complex gap that we seek to address.”

The gap Calvery spoke of refers to a common practice among luxury cash buyers in Miami and Manhattan to make an all-cash, real estate purchase under the guise of a limited liability company or “other opaque structure.” According to FinCEN, by purchasing a property in cash through a shell company, buyers are able to “hide their assets and identity” – an advantage for anyone hoping to use a purchase to launder money.

But the Treasury Department does not intend to scrutinize every cash purchase in Miami; rather, it will require that title insurers report the identities of cash buyers who meet two criteria: their purchase is over $1 million; and the transaction is made through an entity other than the individual. John Tobon, the deputy special agent in charge at Homeland Security Investigations in Miami, recently confirmed to Reuters that the majority of real estate purchases of at least $1 million in Miami-Dade County are made through such shell companies.

Locals Respond to the Scrutiny

How this decision will affect the city’s residential market has quickly become a popular topic of debate, as industry professionals are divided on what impact the new rules will ultimately have.

For Samantha DeBianchi, who founded DeBianchi Real Estate and has appeared on Bravo’s “Million Dollar Listing Miami,” FinCEN’s decision to strip anonymity out of the cash sales process is a step unlikely to produce the desired result of stopping criminals.

“You have to remember that Miami is a one-of-a-kind market, and a lot of people who pay cash aren’t criminals; they just want to remain private,” she said. “So I don’t think it’s necessarily going to [impact the market] as much as we think. I think it’s just going to irritate and frustrate people – especially the very-ultra wealthy people who simply want to maintain their privacy.”

DeBianchi went on to insist that using an LLC to pay for a property in all cash “doesn’t raise any red flags and doesn’t point to suspicious activity.” She explained that the city has many “celebrities” who have reason to want their names off the paperwork.

Like the Treasury Department, Morris Massre, a Realtor with All Luxury Miami Realty who’s worked in the area for more than 20 years, disagrees.

“The city was built on cocaine in the 80s, and now it’s being built on dirty laundry,” he said.

The subject of several reports and documentaries, including 2006’s “Cocaine Cowboys,” Miami in the 1980s was well known as a money hub for Colombian cocaine barons. For a long time, even famed drug lord Pablo Escobar kept a waterfront mansion in the Magic City. Today, with Miami finishing its transition into a truly international city, some worry things are going in a similar direction.

Another Housing Crash?

“When a buyer shells out $20 million cash for a penthouse condo that’s not even built yet, a red flag has to go up somewhere,” Massre said, describing Miami’s condo market as a “house of cards waiting to come tumbling down.”

With how important cash sales have become to the city, Massre is bracing for a looming crash, which he said will be one “heard around the world” and, perhaps, be more devastating than 2007’s.

“This will affect Miami more than the previous crash, because now you will see a bunch of beautiful vacant buildings downtown.”

Already, Miami’s condo market has over a nine-month supply of inventory – well above the normal supply of roughly five to six months – and over the next six years more than 22,000 new units are planned for completion. In a market that’s already overbuilt, it raises questions as to why price appreciation for the property type has been so strong and consistent, given options are only increasing.

While most agree Miami’s real estate market has been the unwilling host to, at least, some money laundering – including DeBianchi who said that it is “of course a problem that needs to be addressed” – whether FinCEN’s actions will work to curb the practice or just inspire more innovative ways of cleaning money remains to be seen.

The network’s rule is scheduled to go into effect for 180 days beginning March 1 of this year, expiring on Aug. 27. FinCEN Public Affairs Chief Steve Hudak told Miami Agent in a statement that while it is possible the rules will be renewed come August, at this time it’s still “much too early to say.”

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