Your Privacy Is Under Attack Again! Real Estate Reports Take Effect Now

Well, your privacy is under attack again. And if you're a real estate investor with any type of raw land or rental property, you've got to understand this new law. Well, last year you may have heard about the BOI report or the Beneficial Ownership Information Report, which was a big deal. Any owner of an LLC in the country had to disclose who the owners of the LLC were with their driver's license, Social Security number, the whole nine yards. It was a lot of information. Got shut down in the Supreme Court. Well, now it's back in a different form. And if you're going to transfer any sort of real estate into an llc, this report is going to be required. Now, there's a couple of exceptions, but the penalties and fines are big again. And it went into effect March 1st. I'm Mark J. Kohler, CPA attorney and small business advocate. And I was there last year on the front lines of that BOI report. And I'm here again dealing with this real estate report. Now, I want to help you stay compliant without losing your mind over another government form and a privacy is important to you. I'm going to help give you the workarounds to keep this information out of the government's hands. Let's dig in. Well, let's start with FinCEN. FinCEN is the regulatory arm of the Treasury Department that is enforcing this rule. Now, that's the Financial Crimes Enforcement Network, sister to the IRS and the Department of Treasury. The purpose of this report is that the government's trying to find bad actors, people that are laundering money, hiding money, and criminals that are using LLCs to launder money and holding real estate. Now that sounds very admirable, but again, they cast a wide net. And if we own real estate, we've got to report what we own so they can find who the bad guys are and what they may be owning. So the government stated goal is to increase transparency and they're requiring real estate owners to file this report in certain types of transactions. Now, let's first talk about what it's not. This has nothing to do with your tax returns. It has no tax impact. And this report is going to typically be filed on alongside the deed when you record the transfer of a property from your trust, your individual name into an LLC or vice versa. So whenever you're transferring property at a title company or in that process, this is when this report might apply. Number two, it's going to typically apply to residential property. That means a property with less than four doors. Next, it applies when a traditional bank or institutional lender is not involved. So if you go buy a property and you get a loan and the title company closes and there's a bank involved, you don't have to file this report. The reason why the bank's already reporting all this information to the federal government, you just didn't know it. Now, the next thing people want to know is, well, what is in this report? There's really four sections to it. The first section is who is filing the report. Now, if you're working with a title company, a law firm, or some sort of closing agent, they have to list their information. The person filing the report, it could be you, has to disclose their contact information in section one. Section two is all about the property. It includes the address and the legal description. Number three is the transferee information. Where is this property going? Who is going to be the beneficial owner at the end of the day? Who's that individual? Their name, address and Social Security number. And a lot of people are upset about this lack of privacy. They're having to disclose entirely who's going to own this property at the end of the day. And that would include who's the owner of the llc, for example, because they want to know if I'm going to hide my ownership in this property in an llc. They want to know who the real owner or control person is of that llc. The fourth section is who's the transferor. And that could be the seller. It could be you just transferring your property into your own llc. And so that piece is going to also be there with their name and information and social. So this report is pretty intrusive and transparent and not too comfortable for people that enjoy their privacy. Now, before we talk about some of the exceptions and when this is most going to commonly apply, I want to talk about what the penalties are so you know how bad they are and how serious you have to take this. Well, there's different levels of what the penalty might be. And the first one is the negligent category. Some people might say, well, hey, I didn't know what the rule was or the law, so they can't hit me with it. No, they can't. That's the negligent level. Now, the amount of the penalty There starts at $1,430 per violation, but it can go up to as high 111,000. The next one is you willfully say, screw you, government, I'm not going to file this. Now, the willful penalty could be civil or criminal. And that's where this $111,000 starts. Kicking in a couple hundred thousand dollars in penalties. But the criminal one gets really serious. It starts at 250 grand. It could be as much as 500,000. Five years in prison, up to 10 years in prison. Now why such a big stick? Again, you have to know the government, which I know all of us would be behind, is trying to get the bad guys here that are laundering money. So they have to put a big penalty in the mix to try to get everybody's attention and get the reporting happening. Now let's get into who is exempt from filing this. The first one I already told you was that a typical traditional real estate closing where there's a standard mortgage in place is exempt because again, the bank's going to report all this to FinCEN anyway. It also doesn't apply if you're transferring it to a trust. So if you're transferring your primary residence with a mortgage on it and you're transferring it from you to your revocable living trust, then you are exempt from having to file this. And the rule there is that the same grantor of the property is the same grantor that created the trust and the underlying beneficiary is the same. And commercial property doesn't apply. And there's a longer list. But again who they are targeting are residential real estate transfers into an LLC that are non financed. So the classic example here is when you're transferring your rental property into an LLC with or without a mortgage. And I want to point out as a side note, LLC are still alive and well. Limited liability companies are critical for asset protection. But some of you may not like this new law of having to disclose all the moving parts and having more privacy. So the three most common ways this is going to apply to you is when you're deeding your property from your personal name or your trust into an LLC without a bank loan. The second most common is if you're doing kind of a subject to deal, you're buying your parents property and you're going to assume their mortgage. You're not getting a new mortgage, you're not going through a traditional closing. You could be buying a property from someone that's in a bad situation and just assuming their loan. And if you go through that process and there's a LLC in the mix right now, you would have to disclose that transaction under this real estate report. The third most common is an all cash deal or private money, a private lender giving you the money to go close on a residential deal. And it's reported right now 40% of residential closings are all cash deals, so those will need to be reported. Now, that can be handled by the title company handling the all cash deal or handling by you if you're handling your own transaction. Typically, at our law firm, we're going to be doing it right after we set up the llc. You buy the property, we've got the LLC underway and then boom, we do the deed right after closing. Awesome. So bottom line, if it's residential property and there's a typical bank regulated bank involved that is going to be handling the closing. With a typical title company, you are not responsible for filing anything at all. But when there's no institutional lender and you're transferring property to yourself, your own llc, or closing on an all cash deal, or getting on a creative real estate closing, you're going to need to worry about this and make sure it's done right. Now, let's talk about an example and a workaround that could work for you. So let's say you just bought a rental property and you had a mortgage, you had a typical closing. All good. You weren't required to file this report because again, you bought it in a typical transaction and you now own this rental property. But as a real estate investor, you know you're going to want asset protection, so you're going to want to form an llc. So now you have your property and your LLC set up and you're going to transfer the property with a warranty deed or a grant deed in some states, whatever the requirement is. And when you transfer this property into your llc, you're going to have to file this report. Now, the first option in a workaround, you've got your property, you've closed. You want asset protection, but you want privacy. Not only privacy from disclosing this to the federal government, you might want some public privacy that people can't see your home address or even who the owner is. So in this workaround, you would form a trust. And this trust is going to be the recipient of a deed from you. You're going to deed the property into the trust. Some might call it a privacy trust, a land trust, a grantor trust. It's going to depend on the state you're in and when you set it up, before you do any deed transfer, we're going to make an LLC the beneficiary of that land trust, of which you are the beneficial owner. We are also going to make an ll, the trustee of that trust. I want to make sure we have solid privacy on these two LLCs. There's going to be two addresses involved with every LLC. Who's the registered agent with a street address and what is the address of the llc, which could be a PO box or an address not even in that state. So on these two LLCs that are set up in this example, again, depending on your situation in the state and how much you want to spend and how much privacy you want, the registered agent can be us. We serve as registered agent for clients in 50 states and we are going to be using an address that is not your home address. We want to make sure that those LLCs do not have your home address or your name on it. Number two, the address for the LLC cannot be the same as your registered agent. They're going to be different. The registered agent has to be in the state where the LLC is set up. Well, we have a virtual mailbox service at our law firm where we service your address. And any mail comes into our law firm every day, we scan it, put it in a portal and you get a little ping whenever you have mail. Oh, and someone calls up and they're pissed off and want to talk to you. Sorry, attorney client privilege, we're not going to share that with you. So using a law firm in that situation, we also create a barrier from anyone that asks any questions. And if, you know, if someone gets a court order is going to be a battle to get through our law firm to find out who you are. So your name's Nowhere on those LLCs, your address is nowhere on those LLCs, and you've got complete privacy there. The trust is your name on that? Oh no. The trustee is one of those llc. When we deed that property into the llc, we meet the test. The grantor of the property in the deed and the grantor or the creator of the trust is you. And you are also the same owner of the llc, which is the beneficiary of the trust and, and the owner of the property. So the beneficial ownership did not change. You are exempt from filing the report. So there's no privacy disclosure to the federal government, there's no privacy disclosure on Google, the web, wherever, and you've got complete asset protection and you've got all the same tax strategies you would have had anyway, Bonus, depreciation, real estate, professional short term rental, whatever, which I love to talk about as well. Now, as I said earlier, and here's my disclaimer, that workaround may or may not work in certain states with certain types of individuals, with their types of trusts and structure or LLCs, but it's possible and that's what we handle in what we call our asset and privacy comprehensive consult. We have been doing these for years and we set up a trifecta in every one of those consultations that brings your entire plan together, all your property, all your businesses and entities, we put on a diagram and bring it together. And I am so honored to be able to share this with you because I really want my real estate investors and Main street business owner clients around the country to be protected. So, in summary, let's wrap up a couple points. LLCs are still alive and well. Asset protection is alive and well. And in fact, I think this is a great opportunity for many, many real estate investors to get better organized. I also want to say that some people can overreact to this disclosure. Some people are fine saying, hey, I'm going to let the federal government know I have nothing to hide. I don't care. That's okay. But again, for those of you that privacy is a big deal, there are ways to deal with this so that you can still live your life in privacy. So what should smart investors do right now? Step one is awareness. You're already ahead of most investors by just understanding this rule exists and watching this video. Step two is to make sure that whenever you have a real estate closing coming up, you are talking with your attorney, the title company or whoever the person is handling the transaction regarding this report, if it applies and who's going to file it. Third, they're taking this time to get organized. They're looking at all of their property and LLCs and how it's structured and where their address may be out there in the public record. And finally, stay positive, stay flexible, and continue to invest in one of the best asset classes in the world, real estate. The investors who stay calm, get good advice and build the right systems around their deals are always going to be just fine. If you need a second opinion on your LLC structure, your real estate entity strategy, or how you can create more privacy in these transfers, my team at KQS Lawyers helps real estate investors get the structure done correctly every day. And if this was helpful, make sure you like the video. Subscribe to the channel and turn on notifications so you don't miss any future updates. I'm Mark J. Kohler. Thanks for watching and I'll see you in the next video.