Articles

Keeping A Buyer’s Identity Confidential

(March 2019)

Scott Claman

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There are certain purchasers of condominium units and single family homes who are concerned about keeping their names off of the ownership records for privacy reasons.  These reasons can run the gamut from a celebrity or public figure want to keep their home address away from the public or the paparazzi to a person not wanting the public to know how much that person was able to pay for their residence.

It is important to address these concerns at the start of the purchase process with some buyers wanting the brokers involved on both sides of the sale and seller to sign a confidentiality agreement whereby the identity of the buyer is not to be publicized and that agreement is to be obtained before the actual buyer’s name even is identified to these parties and before the contract is prepared.   

However, such agreements are limited in their scope and effect and will not protect a buyer from a third party reviewing publically available ownership records.   In every title transfer involving a condominium unit or a townhouse, there will be a deed filed which will have the name of the owner written on it and that deed, when presented for filing, will be accompanied, for recording purposes, by transfer tax returns which provide further information as to the parties involved in the sale.  Therefore, to protect the identity of the individual buyer(s), certain precautions need to be arranged in advance of the sales contract being finalized and signed.

In NYC, there are 2 levels of confidentiality regarding recorded title to real estate which I like to refer to as casual confidentiality and absolute confidentiality with these names intended to suggest what type of public review of the transfer documents that the buyer wishes to avoid.   

On a casual level of confidentiality, a buyer is looking to avoid the individual owner’s name from appearing in a computer search of the deed title or the real estate tax records that are available via Google or another search engine or via the web portal for the NY City Department of Finance.  For this level of protection, creating an ownership entity such as a limited liability company owned by the individual buyer or implementing a trust to own the property for the individual owner would suffice if the name of the company or trust does not include the surname of the individual owner.  For example, the company for to own a given apartment could be named “7X at 300 East 34th LLC” and that company would be owned by the individual buyer. 

The use of this cryptic, yet direct, name would not allow a simple internet search to learn the name of the actual owner of the apartment.

However, there is another level of exposure to the public learning of the individual owner’s name particularly when a celebrity or other public figure is involved.

Under the somewhat recent transparency laws put in place in New York City, the name(s) of the trustee(s) of a trust that owns real property and the name(s) of the owner(s) of the limited liability company that owns real property are required to appear on the transfer tax returns that are submitted with payment to the City Register when the deed is filed.  Also, as proof of the actual sales price claimed in the return, a copy of the contract of sale itself is submitted as part of these returns.

Although these transfer tax returns are not available on line or even generally obtainable by the public, there are “stringers” working for the news media who review the daily submissions of deed filings as they sit in the equivalent of an intake bin at the City Register’s Office which is at a point where the transfer tax returns and the contract of sale are susceptible to review.   In addition to looking for celebrities or public figures, certain in the media look to find the identity of persons involved in newsworthy transactions such as the higher priced sales in a given week or first sales of units in a new condominium project.   

In order to avoid this stringer review for the absolute level of confidentiality, a buyer that has formed an entity, such as the limited liability company discussed above, to purchase and hold title to the real property would have to form a second entity to wholly own the purchasing entity

and that second entity would be owned wholly by the ultimate individual owner  and the ownership and second tier entities would appoint a third party, usually their attorney, as an “authorized signatory” who would sign the contract to bind the entity and sign the transfer tax returns.  In that, currently, the document that makes the appointment of authorized signatory is not filed with the deed and not recorded, the use of this 2 tier entity ownership remove the individuals name not only from the public records but also from scrutiny of the press. 

It is vital in this 2 tier set up that the contract of sale be in the name of the entity with the authorized signatory in place when the contract is signed as opposed to the contract being in the name of the individual as purchaser with the right to assign the contract of sale to the entity as the stringers look to see if there was an individual named on the filed contract of sale.

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Considerations For Foreign Buyers and Sellers

March 2019

 Paul M. Giddins

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A non-U.S. citizen is not prohibited from purchasing, owning and selling real estate in New York, but there are many considerations to be aware of before proceeding.  The foreign purchaser should also check the relevant law and requirements of his home country.

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• Individual Purchase or Entity Purchase?

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          Many purchasers choose to own property in the name of an entity, such as a limited liability company (LLC).  This provides privacy since the ownership documents that are publicly recorded do not include the individual owner’s name.   Another advantage is that generally liability is limited to the entity’s ownership interest in the property and the personal assets of the individual are shielded.  There's another very important reason for a non-U.S. citizen or non-resident alien to own property in the name of an entity: estate tax. For estates of individual U.S. citizens, the first $11,400,000.00 of the estate’s value is currently not subject to federal estate tax.  However, for the estate of a non-resident alien decedent, only the first $60,000.00   is exempt.   Thus, the estate of an individual foreigner who dies in 2019 owning an apartment valued at $10,000,000.00 would be subject to federal estate tax on $9,940,000.00.   Careful tax planning is required to avoid this unfortunate result. 

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          The NYC co-op/condo tax abatement is another consideration.  If the property ( a co-op or condo apartment; this does not apply to single family or multi-family houses) is used as a primary residence and is owned individually, the owner will generally qualify for the 17.5% NYC real estate tax abatement (this may also be available to trusts where the apartment is used as a primary residence by the beneficiary, trustee or life estate holder).  However, if the property is owned by an LLC, it does not qualify.  This typically will be outweighed by the estate tax consequences described above. 

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FinCEN

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          When residential real estate is purchased by an entity in New York City (and several other selected areas around the country) on an “all Cash” basis (i.e., no mortgage) and the price is greater than $300,000.00, the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department requires title companies to report the identity of the individual who controls the entity.  The purpose of this reporting is to aid the government in uncovering money laundering and other illegal activity related to All Cash purchases of residential real estate by entities.   This does not apply if there is an institutional mortgage or if the All Cash purchaser is an individual and not an entity.  The link to the FinCEN website may be found here.

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• FIRPTA

          “FIRPTA” -the Foreign Investment In Real Property Tax Act of 1980 - is the procedure used by the U.S. government to collect capital gains tax on the sale of property by a foreigner or non-resident alien when the price is greater than $300,000.00.  Since it would be difficult for the IRS to collect capital gains tax when the proceeds of a property sale have been taken out of the country, the IRS instead requires that 15% of the gross sales price (10% if the price is less than $1,000,000.00) is paid to the government within 20 days of closing.  After the filing of IRS form 1040-NR by the foreign Seller, the IRS calculates and retains the capital gain and returns the remainder to the Seller.  This can result in a lengthy wait for the foreign Seller to receive the non-taxed remainder, depending on when form 1040-NR is filed.  It is particularly frustrating when there is a minor gain or no gain at all.

          An alternate procedure can be used to reduce the waiting time.  The foreign Seller can apply before closing for a “Withholding Certificate” from the IRS.  If the application is filed prior to closing and proof of filing is provided at closing, then the 15% amount is held in the escrow account of the one of the attorneys until the Withholding Certificate is received.  The funds are disbursed upon receipt of the Withholding Certificate, which can reduce the Seller's waiting time to receive the non-taxed remainder.  In either case, the foreign Seller is required to obtain a U.S. taxpayer ID number in order to file the required FIRPTA forms.