Large sums of money from illegal sources can’t be used without attracting government attention until it’s been sufficiently “cleaned” and its origins are hidden. The real estate industry is, unfortunately, one of the biggest targets for money laundering.
Real estate professionals can be unwitting pawns to money laundering operations, especially where straw purchases are concerned. That makes it particularly important for realtors to know how to spot the difference between a legal straw purchase and one that is suspect.
What’s a straw purchase?
A straw purchase is where one person purchases property for another – and they can be perfectly legal. For example, if parents buy a home for their child as a wedding gift, there’s nothing wrong with that. Similarly, investors may use straw buyers to hide their identity when they’re snapping up land for commercial development so that word doesn’t get out and cause sellers to inflate their prices.
Unfortunately, straw purchases can also be a lot less innocent in nature. Drug and weapon cartels may use straw buyers to conceal their identity as they sink ill-gotten gains into real estate to disguise its sources.
Signs of trouble with a straw purchase include:
- Opaque ownership structures: If your buyer isn’t being transparent with you about who is directing their actions, that’s an issue. The lack of transparency could signal underhanded dealings.
- Unexplained funding sources: Cash sales are not unheard of in real estate, especially for investors – but buyers who are secretive about the source of their funds are big red flags that should make any realtor question the legality of the transaction.
- Unusual buyer behavior: Finally, money launderers often deviate from the norm when it comes to typical buyer behavior. Realtors need to be concerned about a buyer who is “too relaxed” about (or outright disinterested in) negotiations, property inspections and other typical steps in the home-buying process.
If you’re a real estate professional who has concerns that you may have gotten pulled into a money laundering scheme, it may be time to seek specific legal information that can help you extract yourself from the situation.