Editor’s note: Privacy and real estate are intertwined in many ways. This three-part series explores the Patriot Act and its impact on real estate companies, what the industry is doing about privacy compliance, and how realty professionals are protecting their businesses and clients. (See Part 1: Your home vitals on the Web and Part 2: The real estate privacy scare.)
The stories are out there, even if they’re just whispers: The man whose mortgage refinancing was held up because of the U.S. Patriot Act; home buyers being charged fees to have their names checked against a list of terrorists and private data being passed to the government after a home sale.
But there’s one that’s more than just a whisper–confusion abounds when it comes to the Patriot Act and, in particular, its impact on real estate. Even those within the industry aren’t sure exactly how it applies to them and how it affects consumers’ private information shared during the home buying or refinance process.
“A lot of people are very confused,” said Chris Myers, a partner with the law firm Holland & Knight.
There is reason for the confusion: The government has yet to implement some of the rules.
Under the Patriot Act, all 24 classes of financial institutions identified in the Bank Secrecy Act must implement money laundering compliance programs. That includes those involved in real estate closings and settlements. The typical money-laundering scheme with real estate occurs when someone uses all cash from hidden or “dirty” sources to purchase a home.
But, the U.S. Treasury Department has not yet specifically defined the real estate category, so it remains unclear exactly which businesses in the real estate industry will be subject to the rules.
It’s likely, though, that those anti-money laundering provisions will apply more directly to the real estate industry at some point. The Treasury Department has essentially put the industry on notice, announcing that it may soon come up with a proposed rule on the topic.
“It’ll happen eventually,” said Tom Heinemann, policy representative with the National Association of Realtors.
When it does, the real estate industry will have to have policies in place and likely will have to report anything suspicious to the federal government. By law, companies will likely not be able to tell consumers they found anything suspicious, Myers said.
Is the real estate industry being responsible about protecting consumer privacy? Take a survey.
Since the 1970s, banks have been required to have anti-money laundering programs in place, so those provisions of the Patriot Act simply expanded slightly the requirements on banks, Myers said.
“It’s really meant that the customer identification program has been the biggest piece to affect the mortgage companies and banks,” said Vicki Vidal, senior director of government affairs for the Mortgage Bankers Association.
Because of the Patriot Act, banks must collect and verify certain information from customers, such as name, social security number and date of birth. They don’t have to report it to the federal government, but they must keep it on hand in case the government audits them or requests the data.
Although only banks and wholly-owned subsidiaries of banks are directly affected by the rules right now, some mortgage brokers or correspondents have felt the impact. Because the mortgage professionals are closer to the consumer, some banks have asked them through contract to verify that information on behalf of the bank, Vidal said.
Mortgage and other real estate professionals do, however, already have to comply with Executive Order 13224. Often confused with the Patriot Act, the order prohibits any U.S. individual or business from conducting any kind of business with anyone identified on a particular list.
“A lot of companies, particularly in the real estate business, don’t realize they’re covered by this,” Myers said.
The list contains about 5,000 names of terrorists, drug kingpins and others considered a danger to the United States. The list is commonly referred to as the SDN List (Specially Designated Nationals). Under the executive order, no one is allowed to do business with anyone on that list. That has led some companies to begin checking their clients’ names against those on the list, and reports have surfaced about some title companies charging a fee to check clients’ names.
In the event of a match, the transaction must be halted. The company may, however, notify the consumer as to why it was stopped. It’s up to the companies to determine whether the person is actually the one named on the list or if it’s simply a coincidence, which happens frequently, Myers said. If a company believes the individual really is the person on the list, they’re supposed to notify the government.
The Patriot Act also gives law enforcement agencies the ability to request information about people from a variety of businesses and institutions, such as banks and insurance agencies. The list of potential businesses to check with is expanding and does include some real estate businesses, Myers said.
Myers said he’s not sure how widespread such requests are in the real estate arena, but the possibility exists for more companies to be added to the list. If a real estate company has an account with someone the government requests information on, it must turn over all account information. And, by law, the company can’t say a word to the client.
“The individual has no way of knowing,” Myers said.
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