I-Team: Law Enforcement Concerned About All Cash Home Purchases
BOSTON (CBS) -- Buying a home in a hot real estate market is tough. It's even harder for buyers who need traditional financing and are competing with buyers who can pay in cash.
The federal government is now taking a closer look at some of these transactions, fearing they could be masking criminal activities.
Jordan Wilcox spends a lot of time with his broker, Mike DelRose Jr. of Watertown, looking for a place to buy in the Waltham area.
Wilcox, an attorney for a software company, is considered an excellent candidate for financing. His last offer got beat, however, by someone who made an all cash offer.
"It creates a level of frustration," explained Wilcox. "You do try to do everything you can, but it's tough because you can't compete with that when you are using financing."
This is a growing challenge for regular home-buyers. New numbers from www.realtytrac.com show that 36% of all homes purchased in the Boston area last November were all cash transactions. That's up from 27% in November 2014.
"10-15 years ago, cash sales were a rarity," said Mike DelRose of ReMax Leading Edge. "Today, it's a pretty large part of our market."
High end properties are ripe targets for all cash sales. Buyers are often from overseas and are looking for a safe place to park their money in the US.
Daren Blomquist of www.realtytrac.com added, "Cash sales of $2 million or more, those high end trophy homes in Boston, it's actually 77% of those were cash sales."
A growing number of these cash transactions are not by people, at least according to the legal paperwork. They are bought by so called 'L.L.C.s', or limited liability corporations.
Blomquist said these types of transactions lack transparency because it can be difficult to figure who is behind these L.L.C.s.
L.L.C.s are perfectly legal and are often used by wealthy buyers to limit their legal liability, or to keep a large purchase private.
The Financial Crimes Enforcement Network, an investigative arm of the U.S Treasury, has launched a trial program in New York and Miami which will require the names of buyers in cash sales be made public.
WBZ-TV security analyst Ed Davis said currently there is no real oversight on these types of real estate transactions, and criminals, including those from abroad, can launder money this way.
"If you have more than $10,000 cash in a bank, the bank has to report that," explained Davis. "Same thing at a casino. . . That is not the case in the real estate market."
Congressman Michael Capuano thinks the Treasury's program is a good idea. Much of his district, including parts of Boston, Cambridge, and Somerville, has seen sharp spikes in home prices.
Capuano wrote a letter to the Treasury asking them to consider Boston if the trial program in New York and Miami is successful. He added that non luxury property transactions should also be examined.
"If prices are being driven up and average people are being driven out of a community because of criminal activity, that's a real problem," said Capuano.
That's the concern, that these L.L.C.s are creating greater demand and pushing prices up all across the market.
That inflationary trend makes it harder for working people to put down roots.
Jordan Wilcox added, "I think that what you have is a market where people are looking to buy a home, and then you have a market where people are looking to invest, and they have two different priorities, and they clash. Typically, the investors are going to come out ahead because they have the money."
