How the Federal Government's Actions Have Slowed Down the Miami Luxury Real Estate Market

Miami is home to beautiful beaches and luxury houses. Luxury real estate is one of the things that draws people to the city. That is, it was one of the big draws to the city. All of that has changed since the federal government started paying more attention to the housing market in Miami.

Prices like 1.13 million for a condo is large, but it is what a lot of corporations and individuals are willing to pay in the Miami area. Houses will easily sell for even more. A 1.13 million dollar condo is on the small side.

A 47 million dollar mansion was bought recently by a private party in the Miami area. The whole thing paid for in cash. The shell company behind the purchase is untraceable.

The year 2017 saw buyers pay for about 1,150 homes in the Miami-Dade area with cash. And that number only includes home purchases that were more than 1 million dollars. In total though, that was 60% of all home purchases of more than 1 million.

In the past transactions like this were simple and made by anonymous buyers with cash. While some, if not a lot, of the buyers had regular reasons to buy a house, not all of them do. Miami real estate has been a place for criminals to launder money.

It is believed that a lot of the money laundering in the Miami real estate is coming from foreign entities who want a safe way to get clean money without revealing their identity. That being said, resident criminals have also used this method for money laundering.

What Exactly Is Money Laundering?

A lot of us have heard of money laundering through television shows such as law and order but don’t know exactly what it is. The process of money laundering is to take cash that may have been stolen or was otherwise legally obtained, and trying to mask its origin. What a lot of us know money laundering as used for is drug cartels or bank robbers.

There are other times when bills might be marked. Marked bills are used to trace money during major investigations such as sex trafficking investigations. Any number of criminal enterprises also need to hide their illegitimate income from transactions and they need to mask that income.

Even terrorist organizations need to launder money.

For obvious reasons money laundering is illegal. Just because it is illegal though, it doesn’t stop people from doing it. One of the most popular ways to launder money is through real estate transactions.

Real estate changes hands so often and at varying prices that it is the perfect platform for getting rid of dirty money. It is estimated that millions of dollars in dirty money is invested into the real estate industry every year according to the FinCEN director.

A large amount of that money goes into the luxury real estate market specifically.

A prime example of a money laundering case in Florida is that of Alvaro Lopez Tardon. Tardon is an accused drug lord who has, according to the U.S. Government, laundered millions of dollars in real estate and exotic cars in Florida. He is only one of such cases.

An Attempt To Curb Money Laundering

To attempt to curb the amount of money laundering and corruption in Miami real estate (and real estate around the country), the federal government passed a temporary regulation (rule) that all home buyers in the Miami area paying more than 1 million dollars would have to reveal their identity. Similar regulations applied to other cities around the country.

The temporary ruling was in place from March 1st until August 27th. Should the study/rule uncover a large amount of illegal activity, then there is potential that the rule could be expanded in both area. And duration.

This information would not come directly from the buyer. Instead, the information would come from the insurers. Insurers would be responsible for investigating buyers and reporting that information to the federal government. The government would then investigate the buyer in order to determine whether the purchase was legitimate or not.

In the example above where a condo was bought for 1.13 million dollars, the shell company that made the purchase had to reveal its real owner. Something that isn’t required in most cities.

The requirement for buyers to reveal their identity went into effect in 2016. Enforcement didn’t start of strong but increased over time. For now, the rule is a temporary measure in order to study the effects.

Using sources such as real estate agencies and online services, the government collected data about the number of transactions completed since the heavier enforcement and study went into effect. According to the study, less cash transactions were made since the rule went into effect. This is what the federal government expected.

Who’s Behind These Efforts

The original temporary regulation was put in place by the U.S. Treasury Department. For enforcement, the U.S. Financial Crimes Enforcement Network was assigned. Often referred to FinCEN, they are a specific enforcement division of the Treasury that existed before the ruling.

Now that the results are in Florida Senator Marco Rubio is attempting to use the results to push expansion across the entire country. He has taken the regulation and attached it to another bill that he has been working to pass.

A lot of this federal attention has only recently come to light after the news brought light to anonymous purchases in the Miami area specifically. Large transactions such as the above mentioned 47 million dollar mansion naturally draw attention. The public and the federal government become interested.

The Other Result

Not all secretive real estate purchases were used for nefarious purposes. Some purchasers just didn’t want to reveal their identity so their property remained private. Movie stars and business owners sometimes want to have homes where the public or media won’t come looking for them.

The rules to identify oneself may affect people looking to purchase property legitimately but not majorly. The information that the government collects is not readily available to the public, still maintaining a level of anonymity.

A good example of the need to remain anonymous during a purchase of property could be movie stars wanting a private vacation home. Another could be someone who lives in a third world country wishing to keep their financial status private to prevent kidnapping.

If the rule is extended into a national policy/law, it will require a lot more work from the federal government. Agents or analysts will have to spend a good amount of time investigating every purchase. Something that before the ruling, was not conducted. That means more positions or longer hours for existing agents.

Moving Forward

Federal officials are expected to use this study as evidence to move for heavier enforcement of the rule requiring buyers to reveal their identity. The idea is that you can prevent criminal activity and corruption with enforcement of this rule. They will also use this rule to attempt to get the rule to become permanent.

Just because there have been less cash sales doesn’t mean that the measure was successful though.

Overall real estate agents around the Miami area haven’t found a reduced amount of overall purchases. Just in cash purchases. Some agencies have actually reported an increase in the amount of purchases they have seen.

What hasn’t been seen is a major increase in price. Prices haven’t increased as quickly as they have in the past since the rule went into effect.

The fact that sales have either increased or stayed relatively stable could be an indicator that the criminal underworld has found new ways to purchase homes. Further research needs to be conducted in order to determine whether or not the sales being conducted are legitimate or not. It could be coincidence that the amount of sales has increased.

One example of a way that criminals could still be purchasing with cash without revealing their identity is straw purchases. In a straw purchase, an individual buys a home for someone else in order to mask the person’s identity.

At this point it isn’t clear whether or not more research or further studies will be conducted.

A solid determination can’t be made in the effectiveness of the temporary property purchasing rule unless deeper research is performed. Despite the question of the rules effectiveness, it is likely a step in the right direction. Curbing crime and corruption is a worthy cause.

Looking to buy a multi million dollar property in cash in Miami? Contact us today Miami Real Estate Official are local specialist and part of the number 1 agency in Miami Dade and South Florida whom have helped numerous clients with real estate needs accomplish their real estate goals.