FinCEN change covers all luxury cash sales in S. Fla.

MIAMI – Aug. 24, 2017 – Wake up and smell the dirty money.

That’s the message federal regulators are sending to the real estate industry in Miami and other high-priced housing markets.

On Tuesday, the U.S. Treasury Department announced it would extend and expand a temporary initiative designed to uncover criminals laundering money through real estate. The decree targets secretive shell companies – corporations that don’t have to reveal their true owners – buying luxury homes. The feds have already renewed the rules twice since announcing them in January 2016.

But this time, there’s a big difference – and it’s putting Miami’s struggling condo market under even more scrutiny.

The rules, previously so limited in scope that they applied only to a few hundred transactions, will now cover every big-ticket cash transaction by shell companies in seven major markets. They are the South Florida counties of Miami-Dade, Broward and Palm Beach; all five boroughs of New York City; San Antonio, Texas; Honolulu (included in the order for the first time); and Los Angeles, San Diego and San Francisco.

“This is going to gather much more information,” said Andrew Ittleman, a South Florida attorney who specializes in anti-money-laundering laws.

There’s been speculation about whether the administration of President Donald Trump, a former real estate developer, would double down on an initiative pushed by Obama-era officials. But the new policy shows Trump’s Treasury digging even deeper into the murky world of luxury real estate.

The end result: It’s going to get a lot harder for everyone from drug dealers to Latin American politicians to foreign royalty to shield their purchases of U.S. condos and mansions from law enforcement.

The federal decree comes at a bad time for Miami real estate. Overbuilding and a slump in foreign buyers are hurting sales. The average sales price for luxury condo units on Miami Beach fell 21 percent year-over-year in the second quarter of 2017, according to a report from brokerage Douglas Elliman. Two-thirds of those sales were cash.

The rules kick in at different price points depending on the market. In South Florida, they apply to shell companies buying homes for $1 million or more with cash.

“This will help a market that has long neglected the amount of criminal activity taking place in the condo sector,” said Jack McCabe, a South Florida real estate analyst.

But Peter Zalewski, founder of the real estate advisory company Cranespotters, thinks the government is moving too slowly – and not going far enough.

“If you’re closing a $10 million sale and you stand to make $1 million on the deal, that’s a pretty big carrot,” Zalewski said. “And there’s no fear of a government stick, because there isn’t one in place.”

Bark or bite?

Critics dismissed Treasury’s original anti-money laundering rules – first deployed in Miami-Dade and Manhattan last year – as largely toothless.

That’s because only less common methods of cash payments such as money orders, personal checks and hard currency had to be reported. But the latest order includes wire transfers, which are electronic exchanges of money between banks. In most home sales that don’t involve bank loans, money is sent from buyers to sellers through wire transfers. Regulators were missing out on a huge swath of transactions.

“It exempted most people from disclosure,” said Alan Lips, a partner at Miami accounting firm Gerson Preston. “In today’s world, people wire money.”

Until an act of Congress earlier this summer, the Treasury agency behind the initiative, the Financial Crimes Enforcement Network (FinCEN), did not have the authority to monitor wire transfers.

John Tobon, who leads a team of Department of Homeland Security investigators in South Florida, said the move is a crucial first step in allowing law enforcement to monitor funds moving electronically. After the first order, his agents observed home buyers immediately come up with “countermeasures” to avoid the disclosure requirements, including the use of wire transfers, Tobon said.

“Wire transfers were wide open” for abuse by criminals, “and no one was looking at them,” he said. “Now, we’re going to be able to identify companies and individuals that we had no idea about in the past.”

FinCEN is targeting cash home deals because it says they are most susceptible to money laundering. Cash transactions generally don’t involve heavy bank vetting. When banks give out mortgages, they are required to background their customers; professionals in the real estate industry are exempt from those responsibilities, although that could be changing.

Naughty or nice

As part of FinCEN’s latest push, the agency has told real estate industry professionals they should be on the lookout for suspicious activity from their clients.

“The misuse of shell companies to launder money is a systemic concern for law enforcement and regulatory agencies,” the agency wrote in an advisory to real estate agents, brokers, lawyers and other industry players.

It also encouraged them to report suspicious activity involving clients.

Warning signs of bad behavior include clients willing to blindly overpay or lose money on a deal; the purchase of properties with “no regard” for their condition or location; funding that far exceeds a client’s known wealth; and clients asking for unwarranted secrecy or for records to be altered.

David Weinstein, a former federal prosecutor in South Florida who now practices white collar criminal defense, called the advisory “heavy-handed.”

FinCEN is “asking people who are not financial institutions and have no outright obligations to become an arm of the government, to become informants for them,” he said, “They’re sending a not-so-subtle message: We want you to tell us what’s going on. The implication is that if you don’t do this, we’re going to come after you and start squeezing you and say in our eyes you should have known what was going on. You should have vetted this money.”

Although real estate professionals aren’t required to set up compliance programs, no one is allowed to “willfully” turn a blind eye to money laundering, according to federal law.

Weinstein recommended that realty firms consider implementing basic compliance programs.

Ron Shuffield, CEO of EWM Realty International, says the new requirement means closing agents must confirm the name and address of beneficial owners with a 25 percent stake in a corporation or limited liability company via a legal form of ID, such as a passport or driver’s license.

“There’s no legitimate buyer who’s going to feel uncomfortable with this,” Shuffield said.

The degree to which suspect money fuels Miami’s luxe real estate market is debated. But real estate crops up in case after case involving illicit funds. The release of the massive trove of offshore files known as the Panama Papers showed how easily offshore money moves into Miami real estate. The flood of cash has helped raise home prices far beyond what most locals can afford.

In FinCEN’s advisory, the agency highlighted several cases showing the threat posed by money laundering. One example cited was Venezuela’s vice president, Tareck El Aissami, and his associate, Samark López Bello. Both were sanctioned by U.S. authorities for their alleged involvement in narco-trafficking. López Bello owns three Brickell condos valued at nearly $7 million.

Tobon, of Homeland Security, said roughly 50 percent of his investigations involve money laundering through real estate.

The new order takes effect on Sept. 22 and expires on March 20, 2018. It could eventually be made permanent and expanded nationwide. The Washington D.C. bureau of the Herald’s parent company, McClatchy, broke the news that the order would be extended Tuesday.

Achilles’ heel

The FinCEN initiative – called a geographic targeting order – was designed to target the Achilles’ heel of American anti-money-laundering laws: weak transparency rules for limited liability corporations.

In many states, including Florida, it’s possible to set up an anonymous company and use it to buy a pricey mansion or condo. Offshore companies can be used for the same purpose. That’s catnip to criminals who don’t want anyone asking where they got the cash.

FinCEN changed the game by requiring title insurers – which are involved in almost all real estate transactions – to pierce the veil of shell companies and determine who really owns them. The information is not made public.

Because of the limitations of the original rules, roughly 240 transactions in the target markets were reported to regulators over 12 months, according to FinCEN data. But 30 percent of those sales were linked to people who’d been separately reported for suspicious activity by financial institutions.

In Miami-Dade, 16 of 32 reported deals were linked to suspicious buyers.

“They’re going to capture a lot more activity now,” said Jason Chorlins, a risk advisor at Miami accounting firm Kaufman Rossin. “The majority of this activity is done via wire transfer.”

Copyright © 2017 Miami Herald, Nicholas Nehamas and Rene Rodriguez. Distributed by Tribune Content Agency, LLC.

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gator picJack opened one eye, then the other. The early morning sun was blinding, his head pounding from dehydration caused by the night before. As he squinted in pain a large shadow blocked out the sun. The shadow seemed to be getting closer, but Jack’s eyes couldn’t focus. All of a sudden a giant wet tongue licked his face. Jack jerked back swinging his arms at his attacker, hitting his head on something hard. Before Jack could fully grasp what was happening he heard a man’s voice call…

“Hugo! Get over here! Leave him alone!” and the giant black Great Dane grabbed his tennis ball and sprinted away splashing slobber as he ran.

Jack rubbed the back of his head as he stood up. Confused, he looked around studying his surroundings.   Jack was in the middle of Colonial Park, Savannah’s oldest cemetery. The Old Cemetery opened for business in 1750 and today is used as a dog park by the locals with several water bowls scattered throughout the mossy oaks and headstones of Savannah’s earliest citizens and Revolutionary War hero’s.

As Jack watched the giant dog run back to his owners he noticed they had their phones out and were recording the whole thing.

Jack looked down and realized he was only wearing a kilt. No shirt, no shoes and to his disappointment, unlike the Irish drinking song “The Scotsman’s Kilt”, no blue ribbon.

“Not again.” Jack muttered to himself still rubbing his head and walking to out the gate.

 

Should housing fear a price correction?

Should housing fear a price correction?

NEW YORK – Aug. 3, 2017 – In June, existing-home prices jumped 6.5 percent year-to-year to a record high of $263,800, according to the National Association of Realtors®. It’s the 64th consecutive month for year-over-year price increases, and escalating prices are causing some to fear a price correction could be on the horizon.

However, new research from JPMorgan finds that the risk of a dramatic decline in U.S. home prices is very low. JPMorgan based the outlook on information it culled from historical data in 14 developed countries dating from the 1950s.

Sharp housing price corrections are rare, even following a large run-up in prices, according to the report, “Quantifying Housing Correction Risk in Canada and the U.S.”

“The data show that sustained increases in real house prices have been the norm rather than the exception in the post-World War II era, as rising populations and incomes have pushed up land prices,” says Jesse Edgerton, U.S. analyst from JPMorgan’s economic and policy research team. “Of course, there have been occasional large price declines over multiyear periods, as we saw starting in 2006 in the U.S. But such declines have not been common, even after periods of rising prices.”

The study put the odds of a 20 percent decline in real prices within the next five years at about 10 percent in the U.S. and at about 20 percent in Canada.

Source: “J.P. Morgan Points to Low Risk of a U.S. Housing Correction,” CNBC (July 26, 2017)

 

 

Prices increasing, rates falling, and it cheaper to own. What does all this mean? Maybe it’s time to BUY?

Study: In Fla., owning beats renting

LOS ANGELES – July 27, 2017 – Arizona, Nevada and Washington, D.C. are among the 11 states where it’s more affordable to rent than it is to buy a home. But owning a home still beats renting in Florida, according to a study by website GOBankingRates.

GoBankingRates surveyed all 50 states and the District of Columbia, and identified which states are best for buying a home and which are better suited for renting. The study, based on rental data on Zillow, was sourced to June 28, 2017. For the cost of owning, the study assumed a 20-percent downpayment on a 30-year fixed loan.

In Florida, homeowners have the advantage. They GOBankingRates study found that the average monthly rent of $1,543 is $167 higher than the cost of an average monthly mortgage of $1,376. The difference amounts to about $2,000 per year that the average Florida family would save by owning rather than renting, though actual savings would differ by metro area and other variables.

The 11 states where renting a home is less expensive than buying one include Arizona, Colorado, Washington, D.C., Hawaii, Idaho, Montana, Nevada, North Carolina, Oregon, Utah and Wyoming.

© 2017 Florida Realtors

 

Mortgage rates fall again – second straight week

WASHINGTON (AP) – July 27, 2017 – Long-term U.S. mortgage rates fell this week for the second week in a row, despite the Federal Reserve’s efforts to lift borrowing costs.

Mortgage buyer Freddie Mac says the rate on 30-year, fixed-rate mortgages slid to 3.92 percent from 3.96 percent the previous week. While historically low, that is still above last year’s average of 3.65 percent.

The rate on 15-year, fixed-rate home loans, popular with homeowners who are refinancing their mortgages, eased to 3.2 percent from 3.23 percent last week.

Mortgage rates haven’t increased much even though the Federal Reserve has boosted its benchmark rate four times in the past 18 months. That’s because mortgage rates follow the yield on the 10-year Treasury note, which is influenced by many factors. Greater demand by overseas investors can lower the yield.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

AP Logo Copyright 2017 The Associated Press, Jennifer C. Kerr. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

It’s That Easy? Thank You Captain Obvious.

The Property Brothers: Lots of money to be made in real estate

NEW YORK – July 19, 2017 – The Property Brothers, who have become celebrities through their HGTV home renovation TV shows, say there is still money to be made in real estate – but only if you have the know-how.

“There’s a lot of people who make a lot of money in real estate,” said Jonathan Scott, one of the identical-twin TV stars. “But there’s also a lot of people who lose a lot of money because they don’t know what they are doing.”

Jonathan and his brother, Drew Scott, came to Google headquarters in New York for a panel discussion. In 2015 and 2016, the pair filmed two seasons of their shows – “Buying & Selling” and “Property Brothers” – in the New York City suburbs.

Drew Scott, a real estate agent, advised first-time homebuyers to do their homework before showing up for an open house.

“You narrow your search down online, and even before you are searching for your property, you are narrowing down what you can afford, using (online) financial calculators,” he said during the forum.

“Whether to find a contractor for renovation, whether it’s buying and selling, you have to get organized because the more information you have right from the get-go, the easier the process, the less stressful it’s going to be.”

Jonathan Scott, a contractor, told aspiring homeowners not to be fixated on move-in-ready homes.

“Lose the ego. This is a business decision. Don’t go in and say, ‘Well, I can’t settle for a house that’s not perfect. I’m not going to settle for something that’s gross.'” he said. “Don’t be afraid to take on a fixer-upper. Put a little bit of elbow grease and fix it up, and then you just help secure a safer retirement for yourself.”

Even if you can put your ego aside, financing a renovation project can be tricky for first-time buyers because their resources tend to be limited. To assist those young buyers, financial products and programs are available, said Mike Wise, senior lending manager at JP Morgan Chase, who also was on the panel.

The event, sponsored by Chase Home Lending and Google, also was an occasion for the two companies to release a summary of their collaborative study, Search for Homes Snapshot.

The study indicated that Millennials are becoming more interested in owning homes: In 2016, 44 percent of Google searches related to the term “mortgage” was about first-time buyer mortgages, up by 11 percent from 2015. Previously, Millennials have been slow to enter the housing market because of student debt and career setbacks related to the recession.

The trend is reflected in Chase’s mortgage business as well: Customers younger than 35 accounted for 36 percent of the bank’s new mortgages in 2016, up by 16 percent from the year before.

“There are two ways to help Millennials: Help them to have less money down and less closing costs,” Wise said, giving examples such as a loan product that requires a minimum down payment of 3 percent and a first-time homebuyer education program that comes with a $500 grant to reduce closing costs.

The education piece is important, not only to find additional money but also to become a financially savvy homeowner, Wise said.

“There are two things going in tandem when we talk about homeownership,” Wise said. “It’s being able to buy a home and sustainability: how I stay in the house once I get it.”

The Scott brothers say prospective buyers need to learn the ropes.

“Education is the biggest thing,” Jonathan Scott said. “If you are going to do it right, you need to know what you are doing.”

Added Drew Scott: “If you are organized and you are educated as to what to expect and you are surrounding yourself with professionals, you will be successful in real estate.”

Copyright 2017, USATODAY.com, USA TODAY, Akiko Matsuda

Gen X still hurting

Gen X still hurting as top victims of the housing crisis

NEW YORK – July 19, 2017 – Generation X house buyers are lagging behind those in other generations in gaining home equity, and younger millennials are gaining on them, according to a new report by the real estate website Zillow released Monday.

The biannual report, which tracks the home equity of more than 50 million people, found that Gen Xers – now 35 to 50 years old – are still suffering from the effects of the housing crisis. After many of them purchased homes in the 2000s, they watched as the housing market crashed, with home values reaching new lows in 2012.

Zillow researchers found that while the average Generation X homeowner owes 70 percent of the value of his or her home to the bank, the average millennial is not far behind, owing 76 percent of home value although having had much less time to gain equity.

Dowell Myers, a professor of urban planning and demography at the University of Southern California, said the crash hit Gen Xers the hardest.

“That left them scarred. Their credit was damaged, they lost all their equity and they were psychologically risk-averse after that. Then they had to go through five years of recession and recovery when things were really lagging in the job market,” Myers said.

For those who weren’t able to recover, their low home equity could have harsh consequences. Aaron Terrazas, the senior economist at Zillow, said the biggest source of retirement savings for most Americans is their home.

“If you look at Americans around retirement age, anywhere from 50 to 60 percent of your total assets, your total net worth, is in your home,” Terrazas said. “For low income, and particularly for Hispanic Americans, it tends to be much higher – as high as 80 percent. So building home equity is an important part of being able to retire comfortably.”

Millennials have it easier, according to Myer. But their challenge is a thin housing supply, especially in the cities. That concerns Erica Feher, a millennial from West Los Angeles, who wants to buy a house with her husband, but has struggled.

“We have to make over an hour commute to be able to get into an area that we can afford,” she said.

Some of her friends have given up on Los Angeles, Feher said.

“Quite frankly, I have a handful of friends who have moved back to my home state of Nebraska or other areas like Arizona and Texas where housing is just more affordable,” she said.

In comparison to Gen Xers and millennials, baby boomers age 50 to 65 typically owe about 56 percent of their home’s value, according to Zillow. The silent generation homeowners with a mortgage who are 65 and older typically owe 45 percent.

© KPCC – 89.3 FM, Renee Gross; © 2017 SCPR All rights reserved

What is Your Dream House?

What does today’s ‘dream home’ look like?

NEW YORK – July 18, 2017 – These days, most Americans want a “dream home” that expresses their individual style; and for many, that means modern, high-end finishes like solid-surface countertops, spa-like bathrooms and chic industrial features.

The most popular images on Houzz, BHG.com, and HGTV.com, based on the number of online clicks, likes, and saves, can help gauge what today’s homeowners want in a dream home.

According to Sheila Schmitz, editor at Houzz, defining a dream home can be “an addictive experience, because people can find so many examples that speak to them personally.” She notes that, in many cases, “there’s a sense of nostalgia at work.”

The most popular photos on Houzz right now show transitional interiors that mix traditional and contemporary design elements, with daring use of prints, metals and other textures. Statement lighting in the kitchen, custom stonework in the master bathroom, and farmhouse-style exteriors with industrial-inspired fixtures have garnered the most attention.

Mariel Clark, vice president of home and travel digital for Scripps Networks Interactive, which includes HGTV, says consumers often click on photos of small, well-appointed areas when it comes to home-renovation projects.

“Our audience does gravitate toward homes and spaces that they can identify with,” says Clark.

Serene décor remains in high demand in master baths and bedrooms, adds Amy Panos, home editor at Better Homes & Gardens. “Calm is what people want in terms of their bedrooms,” she says.

However, Panos notes that homeowners are interested in dramatic entrances, with photos of oversize planters, fire pits, and colorful front doors getting the most clicks this year. “People are getting fearless about their front door,” says Panos.

Source: Wall Street Journal (07/14/17) P. M1; Dizik, Alina

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