NATNews Blog > January 2016 > ALTA Makes Recommendations to FinCEN to Clarify GTO

    ALTA Makes Recommendations to FinCEN to Clarify GTO

    1/14/2016 9:13:14 AM
    In a letter to the Financial Crimes Enforcement Network (FinCEN) on Jan. 13, the American Land Title Association (ALTA) asked the agency to clarify recent a Geographic Targeting Order (GTO) that imposes additional recordkeeping and reporting requirements designed to deter money laundering in New York City and Miami.

    First, ALTA proposed adopting the definition established in the Real Estate Settlement Procedures Act (RESPA) of the term “residential” within the triggering clause of the GTO.

    “The industry is familiar with the regulatory scheme and definitions provided in RESPA and this familiarity will help companies consistently identify transactions covered by this GTO,”  ALTA noted. “RESPA applies to ‘federally related mortgage loans’ which are defined as loans that are ‘secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property’ (emphasis added). We propose using the emphasized portion of this definition for determining whether a transaction is covered by this GTO.”

    Second, for purposes of determining when a “purchase is made, at least in part, using a monetary instrument,” ALTA recommended that the GTO should not cover transactions when only a de minimis amount of the transaction price is paid via a monetary Instrument.

    “We believe that de minimis threshold should be the current $10,000 threshold for filing a Currency Transaction Report under current Internal Revenue Service (IRS) and FinCEN regulations,” ALTA advised. “This will allow the reporting to comport with the intended purpose of the GTO to track the movement of larger amounts of monetary instruments in violation of federal anti-money laundering laws.”

    ALTA explained that under state real estate settlement laws or industry practice, settlement agents require collected and settled funds for the closing of a real estate transaction. This process traditionally requires the transmission of settlement funds via wire transfers, which are not considered monetary instruments under the GTO.

    “However, in some instances a minimal amount of the purchase price may be held by a third party (such as the real estate agent holding an earnest money deposit) or a service connected with the transaction may be paid for outside the closing,” ALTA explained. “In these situations, a title insurer could be unaware that a specific transaction is covered by the GTO.”

    Third, ALTA suggested the definition of the term “Legal Entity” as used in the GTO exclude a trust. The GTO defines the term “Legal Entity” as a corporation, limited liability company, partnership or other similar business entity.  According to ALTA, unlike a corporation, a trust is not considered a separate legal entity under the common law of various states and adopting this recommendation will provide a definition consistent with those used by the industry for purposes of determining how to effectively transfer title.

    Fourth, ALTA recommended FinCEN define the term “representing the purchaser” as used in Section II.B.2.i to mean the person authorized by the entity to enter legally binding contracts for the entity (typically its officers or managing member).

    “It is typical in transactions of the type covered by the GTO for the purchasing legal entity to be represented by numerous counsel and executives (or members in the case of an LLC),” ALTA said. “The industry already typically requests corporate authority documents for determining the identity of the person necessary for executing documents for closing the transaction. Adopting a similar definition for purposes of this GTO will help promote consistent reporting.”

    Fifth, ALTA recommended that the term “agents” as used in the GTO refer only to people or entities with a contractual relationship with the covered title insurer.

    “State insurance laws require insurers to appoint agents via a specific written contract or authorization,” ALTA noted. “This will help the insurers consistently determine which business partners they must educate and supervise to comply with the GTO.”

    Sixth, ALTA suggested making the record retention period consistent with the requirements imposed by state law for real estate settlement instead of the five years specified in the GTO, making it easier for companies to store and sort their records following the closing and ensure that records for Covered Transactions do not get mistakenly destroyed before the close of the state law or FinCEN retention period.

    Lastly, ALTA urged FinCEN to use a reasonable and good-faith test for determining insurers’ compliance with the GTO.

    “We believe that the clarifications requested above and joint education with the insurer and FinCEN should ensure that all covered transactions that the insurer is aware of will be reported; however, even with the best efforts of title insurers, there may be transactions of which the insurer is not made aware (because no insurance is purchased) or in which the insurer only first learns of the transaction after the 15-day period after closing.”