The Florida Land Title Association (FLTA) along with the Real Property Probate and Trust Law Section of The Florida Bar are the primary industry advocates for the title insurance and settlement agent industry. The mission of FLTA is to support the land title profession "for the protection of property rights and the integrity and security of real estate transactions." FLTA promotes the interests of approximately 30,000 title professionals and attorneys conducting residential real estate closings in Florida. Most of the title companies and law firms fall under the definition of small businesses under the rules of the Small Business Administration.
FLTA has supported FinCEN over the past several years in its efforts to combat illegal money laundering through residential real property transactions. Our comments reflect our commitment to continue that and work with FinCEN to develop a rule that can be implemented with an acceptable level of cost, time and effort by the parties affected. Additionally, our comments are based on the collective knowledge, expertise, and experience with our members' compliance with existing Geographic Targeting Orders. The importance of Florida in residential real estate sales is reflected by the scope of the GTOs currently affecting eleven of the most populous counties in Florida and therefore the impact of the proposed rule on the real estate economy in Florida will be significant.
As requested in the Proposed Rule, we refer to the numbered Questions, beginning on Page 12442, Federal Register/Vol. 89. No.33/Friday, February 16, 2024/Proposed Rules. For ease of reference, they will be designated as Q_).
For ease of reference, the terms Closing Agent, Settlement Agent and Title Agent or Title Agencies, are used interchangeably.
FLTA would like to submit for consideration the following comments which are grouped into related categories. What follows is a summary of concerns we see affecting the title industry.
I. THE CASCADE (Q 3-7, 32)
The Proposed Rule establishes a hierarchy for responsibility for reporting a covered transaction. Although the rule provides for 7 potential Reporting Persons, FLTA asserts that 99 percent of the time responsibility for compliance will fall upon Closing/Settlement/Title Agents. None of the other parties in the Cascade will accept the responsibility if there is a Settlement Agent as defined in the proposed rule. In Florida, the Settlement Agent is the same as the Title Agent in the vast majority of transactions. Thus, our letter focuses more specifically on how the Proposed Rule will impact Title Agents.
II. TITLE AGENTS LACK READY ACCESS TO BUILDING AND ZONING INFORMATION (Q 40, 41, 42)
A. In Florida, Settlement Agents do not routinely obtain zoning information or review building permit applications. Zoning is not a matter insured against under a title policy in Florida; therefore title agents are not familiar with obtaining or interpreting zoning information. Under the proposed rule, however, in addition to the search of the county official records required to issue a title insurance policy, the closing agent will be required to verify the permitting and zoning information at the applicable local municipality. This will increase the labor costs to the closing agent and require possible third party vendor costs, which will be passed on to consumers (further discussion regarding costs to follow) as well as having the potential to delay closing transactions if this additional information is not available or is misinterpreted. At worst, it potentially subjects the closing agent to large financial penalties and fines, due to not being able to obtain such information or unintentionally submitting incorrect information.
FLTA’s Recommendation
The FLTA recommends allowing the closing agent to rely upon the information in the contract for purchase and sale, rather than requiring investigation of building permits and zoning records. Furthermore, the closing agent should not be held responsible for the accuracy of this information nor in making the determination of whether a vacant parcel is “zoned” or is a parcel “for which a permit has been issued” for a single family residence to be constructed.
III. TITLE AGENTS DO NOT HAVE ACCESS TO THE FINANCIAL INFORMATION REQUIRED AND THE INQUIRY WILL CREATE PROBLEMS FOR PARTIES IN THE TRANSACTION (Q 9,12,13,16, 20, 29, 36, 41, 42, 44)
A. The proposed rule requires the following information about payments received from the transferee entity, transferee trust and others, including the amount of the payment, the method of payment, the name of the institution and the account number from which the payment was made, and the name of the payor if not the transferee entity or transferee trust.
The information received by the settlement/closing agent for a typical transaction from their bank for incoming wire transfers does not include most of this information. Specifically, requiring the account number from which the funds were transferred to the closing agent’s escrow account is of significant concern. To obtain this information, the closing agent would need to request this information from each party sending money on behalf of a covered transferee entity or trust. Several problems could arise as a result of this request. If a sending party refuses to provide the information, the sending bank may also not be willing to provide it due to privacy concerns. Since wired funds are received very shortly prior to settlement, delays in closings would likely result. This will also create significant hurdles to the handling of “double or same day closings” in which funds may be received from another title agency or attorney, who will refuse (under industry best practices) to disclose their trust account number. This is addressed again in other comments below.
B. The requesting of additional information will cause friction between closing agents and their customers. With identity theft and land fraud at all-time high levels in Florida, people are increasingly reluctant to provide non-public information.
C. Another significant concern is whether the closing agent is responsible for verifying the information received and maintaining compliance with privacy statutes. Accordingly, a closing agent will be at risk for reporting incorrect information as well as increased risk of cyber fraud.
D. Under the current FinCEN Geographic Targeting Orders, the Transferee in a residential real estate transaction is not required to provide the same detailed information. FLTA requests clarity on the nexus between the additional information required by the proposed rule and the ability of law enforcement to effectively investigate suspicious activity.
E. The Rule, as proposed, would include all parties who pay a part of the purchase price, regardless of the amount. Small dollar amounts should not be reportable.
F. There are many transactions where the transferee’s funds are coming from the law firm or title company that handled the transferee’s sale of previously owned property. Under ALTA Best Practices, the law firm and title company will likely refuse to provide detailed account information required by the proposed rule.
FLTA’s Recommendations
FinCEN may consider limiting the information required to be reported for the wires to name and address of the party supplying the funds. We also suggest a threshold dollar amount for a nontransferee (e.g., family member) who is contributing funds to a purchase but not holding title. The rule should provide that a reportable transaction should not be delayed due to the failure to obtain all required information provided there is substantial compliance with the rule.
IV. SIGNIFICANT FINANICAL BURDEN UPON SMALL BUSINESSES (Q 1, 36, 37, 38, 39, 41, 42, 47)
The Proposed Rule imposes an additional financial burden on the reporting persons. As mentioned, the majority of Florida title agencies fall within the definition of small business and compliance with the proposed rule will be burdensome financially considering the additional costs in (a) training personnel to properly complete and submit the reporting forms and (b) the additional legwork necessary to obtain the additional information to be reported and (c) the actual cost of obtaining the necessary data to either determine if a party fits within the definition of transferor or transferee and/or whether the real property qualifies as reportable residential real estate as defined by the proposed rule. Additionally, obtaining and storing the additional information required will put the title agency at increased risk for cyber fraud which in turn increases expenses to the title agent. More specific information may be found below.
FinCEN provided estimates of labor costs associated with implementation of the proposed rule. We suggest that FinCEN’s estimates do not capture the full financial impact on title agents and offer the following comments.
(a) Investigating zoning (beyond what may be posted on a local government website) requires either a visit to the applicable office to research their records, or the ordering of a zoning letter. Will the closing agent will have to advance the cost (est. $50 - $100)?
b) Investigating permits will almost certainly require a visit to the local government office, since permit history is generally not readily available (est. labor 1-1.5 hours);
c) Time required to research (and verify, if deemed necessary) the information requested regarding Buyers/ Seller and those who may assist Buyers with funding; Members of the Limited Liability Company; shareholders of the corporation; Trustees, beneficiaries of the Trust.(est. labor 1-2 hours);
d) Additional costs for software upgrades to track the ordering, processing, and receipt of the information, then maintain in secure data base (unknown—depends on vendors);
e) Writing checks to obtain some of this information will add additional time in bank reconciliations; bank fees for check clearing, management of outstanding checks; stop payment fees when checks lost, reissue checks (est. .5-1.0 hours);
f) Training and supervision costs to educate staff on the procedures, checking the data for each closing, reading zoning reports, permit reports, form completion, in depth review (average per file of 1.0 hour);
g) Review Operating Agreement for information about Members, which may require the engagement of an attorney to render a legal opinion (est. $350.00);
h) Alternatively, review shareholders agreements or corporate bylaws, which may require the engagement of an attorney to render a legal opinion (est. $350.00);
i) Review of Trust which will certainly require engagement of an attorney to make the determination as to who is a Beneficial Owner under the proposed rule (est. $350.00); and
j) Preparation of Forms as required by the Rule (Beneficial Ownership Affidavit, Real Estate Report), submission, verification of receipt, follow up with inquiries from FinCEN (est. 1 hour).
Based on a reasonable volume of business, title agents would likely need to retain a full time person on staff to handle these additional tasks for the company. Title agents would need a fully trained and knowledgeable employee on all aspects of FinCEN. Compliance will be expensive, especially in light of the magnitude of the amount of the fines and penalties.
FLTA’s Recommendation
FinCEN should include a provision in the Rule authorizing the Reporting Party (including the Title Agent) to charge a reasonable fee for compliance, notwithstanding any state or federal law to the contrary.
V. CATEGORIES OF DOCUMENTS AND/OR TRANSACTIONS THAT SHOULD BE EXEMPT FROM REPORTING
The purpose of the proposed rule is to collect data to aid in identifying transactions involving money laundering. In Florida, there are several situations in which conveyance documents would be reportable but that are not vulnerable to money laundering because no consideration is being transferred or involved in the transaction.
A. Corrective Conveyance Instruments (Q 29)
A significant portion of our business as title insurers and title/closing agents is performing corrective title work for either upcoming transactions or where there is corrective work needed to correct a matter after the transaction has closed and title has been insured. To report on this type of transaction is unduly burdensome and in some cases may be impossible.
B. Estate planning/Family Gifts (Q 16, 25, 26, 27, 28, 30, 34, 35, 36, 37, 38)
Similarly, Florida has a large population of retirees and senior citizens. Therefore, estate planning is naturally a large part of the real estate industry and law practice. We believe that as the proposed rule currently reads, some transactions involving gifts between family members would fall into reportable transactions. This is not information that FINCEN is seeking to track and therefore gifts between family members should be exempt.
Estate Planning, by its very nature, involves confidentiality, personal information, and financial data. Most importantly, the planning is always prepared by an attorney, who is bound by Attorney Client privilege. The disclosures sought by FinCEN will affect each of these areas.
FLTA’s Recommendations
i. Create an exemption for corrective documents.
ii. Create an exemption for transfers resulting from a sale to a revocable trust in which the Trustee confirms by Affidavit that Trustee or the Settlor is the same person as the Primary Beneficiary.
iii. Create an exemption for a gratuitous transfer from an individual into a revocable trust in which the trustee confirms by affidavit that grantor is the same as the primary beneficiary.
VI. TITLE AGENTS MAY INCUR LIABILITY FOR MISINTERPRETATION OF COMPLEX CORPORATE AND OTHER DOCUMENTS (Q 22, 25, 29, 34)
The type of information needed for reporting under the Proposed Rule potentially increases exposure to the Title Agent/Agency for the inability to obtain and properly interpret and analyze the detailed reporting information. As previously mentioned, large fines for non-compliance are potentially devastating to a small business. Inherent in the issue is that, in general, title agents are not trained in the organizational structure of LLCs, Corporations, Partnerships, etc. The first challenge is for the purchasing entity to be identified as a reportable transferee entity. For example, an unregistered pooled investment vehicle (“PIV”) is an entity within the categories of transferees under the proposed rule. A title agent closing a real estate transaction is not in a position to identify whether or not an entity purchasing real estate qualifies as a PIV. The second challenge is that if the entity is identified as a PIV, is to obtain the specific information required to be included in the reporting information. The same applies to identifying and reporting on Large Operated Businesses.
A further example is where the title agent, in order to comply with the proposed rule when a purchaser of residential real estate is a Transferee Trust, will now have to request complete copies of a settlor’s trust where neither Florida law, nor customary practice currently mandates this. Many times the settlor does not want to provide this information due to understandable family privacy concerns. Again, this causes increased friction and time delays as well as additional labor to request and analyze the information.
With specific regard to LLCs in Florida, closing agents are now going to have to request operating agreements for every LLC along with other internal corporate documents. This will be an impossible task because Florida law does not require LLC’s to create or maintain written operating agreements and therefore, many Florida domiciled LLCs will not have written operating agreements.
The additional NPI Retention (5 years) is contrary to current practices. There will be additional storage costs, plus Agents will want to delete NPI from their files, if possible (given the cyber security breaches which could occur).
FLTA’s Recommendation
The foregoing were just a few examples and challenges the Florida title industry will face. In light of the difficulty or impossibility of obtaining information and challenges with confirming the veracity of the information provided, FINCEN should consider allowing for a representative of a transferee entity to certify under penalties of perjury (a) whether the entity is a transferee entity under the rule and (b) that the information provided is true and correct and identifies all required parties/entities as required by the proposed rule.
VII. IMPACT ON CONSUMERS (Q 1, 8, 10, 22, 25, 26, 27, 37, 38, 41, 42, 47)
The Rule will have significant impact upon the buyers and sellers (consumers).
A. FINANCIAL
1. Elimination of closings scheduled on short notice due to the time delay in receipt of zoning and building permit information from municipalities (average 5 to 10 days to receive).
2. Additional cost to obtain zoning certificates and building permit information.
3. Costly delays in closing due to obstacles in obtaining information.
4. The proposed rule will eliminate the ability to accommodate sequential same day closings because the attorney or title agent handling the first closing will refuse to wire the seller proceeds directly to the attorney or title agent handling the second closing due to the requirement to disclose detailed trust account information.
B. PRIVACY WILL BE BREACHED
1. Confidentiality of Trust Agreements (discussed above).
2. Confidentiality of Operating Agreements or Shareholder Agreements (for the vast majority of entities who create their entities for a legitimate purpose).
3. This adds to the information that must be obtained and stored by the title agent which is at risk of exposure of a cybersecurity breach.
C. CONVENIENCE
Some title agents often record, as a courtesy, deeds and other documents for customers. Under the proposed rule, title agents will no longer be able to do this as a courtesy due to the cost and risk with complying with the rule.
VIII. FLTA REQUESTS CLARIFICATION ON THE FOLLOWING POINTS. FLTA has a very strong and active agent and agency membership. Representatives of that group have reviewed the proposed rule and have numerous areas of concerns about the coverage of the rule and how to handle situations that often arise in connection with their transactions. Clarification is key to facilitating the success of the rule.
A. The third person in the Reporting Person cascade is the person who “files with the recording office” the deed or other instrument transferring owner. Is this the Clerk or other officer who places the deed in the public records or is it the person who presents the deed for recording to the clerk or other officer?
B. How are 1031 exchange transactions handled since the funds are coming from third party exchange entity?
C. A cash buyer who is an individual (not reportable) and funds are received via wire from an LLC account that we are told is owned or controlled by the individual cash buyer. Does this make the transaction “reportable”?
D. Earnest Money Deposits. Please clarify whether Settlement Agents must include funds received from real estate brokers that represent the buyer’s earnest money deposit? Similarly, are we required to provide the required information on funds sent that represent the cash due at closing?
E. Often the contract for sale and purchase is assigned by the original buyer to a new buyer (often for consideration). Is only the transaction to the assignee buyer taking ownership reported?
F. Who is the party responsible to pay for the cost to obtain permit and zoning documentation from the applicable local government? The settlement agent should not be responsible for advancing the funds, if any are required to obtain this documentation.
G. What about gifted land-money hasn’t changed hands but there is a value to the land?
H. How do we know if a company is registered with FinCEN? How do we confirm?
I. Are there any consequences if a Reporting Person reports a transfer that is not covered by the rule?
CONCLUSION (Q1, 47)
We commend the effort to investigate and eliminate money laundering. The FLTA seeks dialogue with FinCEN to create reasonable methods for the Department to accomplish these goals, while minimizing the burden and costs upon the Closing/Settlement/Title Agent and consumers. Based upon the complexity of the information required under the proposed rule, the FLTA recommends a minimum of a one-year period before the proposed rule becomes effective. This would allow for personnel training on completion of the forms and time to develop internal processes and procedures. We also request confirmation from FinCEN that a title agent’s good faith attempt to comply with the rule is sufficient to eliminate the potential for fines and penalties. Perhaps a sufficient compliance standard would be something FinCEN would consider. The FLTA very much looks forward to working with FinCEN as the rule making process moves forward.
