Shady Real Estate Deals Plunge Under New Regulations

Since the U.S. started making anonymous homebuyers reveal their true identities, luxury prices in hot markets have dropped.

In any hot real estate market, there are complaints about prices being artificially inflated by foreign buyers. That sometimes sounds a little far-fetched. In cities with tens or hundreds of thousands of homes, how many can really be bought up by absentee owners from abroad? Actually, the answer turns out to be a substantial share.

Federal laws designed to prevent money laundering have long had a gaping loophole. Namely, real estate. People or corporations that pay for houses and condos with cash, whether using currency or wire transfers, can evade disclosure requirements. The sellers and bankers involved don’t have to know who the real entities are behind limited liability corporations nominally making the purchase.

There are any number of reasons why buyers would want to remain anonymous: It allows them to launder money and hide assets from tax collectors -- as well as their spouses if they’re getting divorced, or creditors if they’re going bankrupt. For foreign buyers, it’s a good way of masking their true net worth from authorities back home.

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