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FinCEN Renews and Expands Geographic Targeting Orders in Florida Real Estate Transactions

The ever-evolving landscape of Florida’s real estate market is marked by both significant growth and heightened vigilance against potential financial irregularities. Amidst this dynamic environment, the recent expansion of Geographic Targeting Orders (GTOs) has garnered attention, particularly for practitioners such as myself, whose practice primarily focuses on Sarasota and Manatee Counties.

What is a GTO?

Unfortunately, we’re not talking about the legendary Pontiac G.T.O. from the 1960’s and 70’s. That’s a post for another day (and another blog). No, the GTOs we’re talking about are the GTOs that are mandated by the Financial Crimes Enforcement Network (FinCEN), which are designed to combat money laundering and other illicit activities in the real estate market. Initially implemented in Florida in 2016 for Miami-Dade, Broward, and Palm Beach counties, the recent expansion to include Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, and Collier counties underscores the growing importance of compliance in these areas. The effective date of the GTO expansion to the new counties is November 21, 2023.

Does the GTO Apply?

Geographic Targeting Orders (GTOs) are implemented in specific geographic areas where there is a heightened risk of money laundering and other illicit activities in the real estate market. In Florida, GTOs apply to residential real estate transactions with a purchase price of $300,000 or more in the following counties: Miami-Dade, Broward, Palm Beach, Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, and Collier.

To determine whether a transaction falls under the applicability of the GTO, the following criteria need to be reviewed:

  1. The transaction involves a purchase of one or more residential real property (typically not vacant land) in Miami-Dade, Broward, Palm Beach, Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, or Collier Counties; and
  2. The total purchase price is $300,000.00 or more; and
  3. The purchaser is a corporation, limited liability company (LLC), partnership, business trust, or other similar legal entity. (The definition does not include natural persons, revocable trusts, or publicly traded entities and their wholly owned subsidiaries); and
  4. The purchaser purchases the residential real property without a bank loan or other similar form of institutional financing (“cash”); and
  5. The purchaser pays any part of the purchase price using currency, cashier’s checks, certified checks, traveler’s checks, money orders, business or personal checks or wire fund transfers or payments (no requirement to report check numbers or wire routing numbers), or virtual currency.

If a transaction meets all of the criteria then the transaction is subject to GTO compliance requirements. This means that the settlement agent must collect and report identifying information about the beneficial owners of the purchasing entity.

Look, Ma, No Loan

The reason that transactions with institutional lenders, such as banks or credit unions, are generally exempt from GTO compliance requirements is because institutional lenders are already subject to extensive anti-money laundering (AML) regulations, which require them to collect and verify beneficial ownership information for their customers.

What if the Buyer Refuses to Provide the Required Information?

In sum, a law-abiding settlement agent would likely refuse to close the transaction. This is because the settlement agent would essentially be violating the law by not properly reporting the information required by the law.

Additionally, the buyer likely would be in default of the contract, assuming the contract is on the standard FAR/BAR Standard Residential Contract or the FAR/BAR AS IS Residential Contract. Specifically, Standard I of the FAR/BAR Contracts include the following language:

FinCEN  GTO REPORTING  OBLIGATION.  If Closing Agent is required to comply with a U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) Geographic Targeting Order (“GTO”), then Buyer shall provide Closing Agent with essential information and documentation  related to Buyer and its Beneficial Owners, including photo identification, and related to the transaction contemplated by this Contract which are required to complete  mandatory reporting including the Currency Transaction Report; and Buyer consents to Closing Agent’s collection and report of said information to IRS.

Is the Juice Worth the Squeeze?

While the additional administrative burden brought about by GTO compliance may be perceived in the industry as an annoyance a challenge, its underlying purpose is commendable. By requiring title insurance companies to collect and report identifying information about the beneficial owners of entities involved in real estate transactions, GTOs aim to deter illicit activity and protect the integrity of the market.

The expansion of GTOs into the new geographic locations, including Sarasota and Manatee Counties, evidences that the GTOs likely will not be going away anytime soon, if ever. Real estate professionals and parties to these transactions must navigate the GTO landscape effectively. This includes understanding the specific requirements, identifying transactions subject to GTOs, and compliance with the law and contractual provisions that require the collection and reporting of beneficial ownership information.

And so, while the additional regulatory burden may temporarily impact the pace of transactions, the long-term benefits of a more secure and transparent market are undeniable. The GTO expansion reflects a commitment to upholding the ethical standards that underpin the real estate industry. By embracing the spirit of these measures, and adhering to these regulations, we collectively contribute to safeguarding the real estate market from potential financial abuses, and contribute to the perpetuation of its growth.

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