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The court declared the CTA unconstitutional on the grounds that it exceeds the Constitution’s limits on Congress’ power. Specifically, the CTA was found to lack a sufficient nexus to any enumerated power, rendering it unnecessary and improper for achieving Congress’ policy goals. 

We are currently reviewing the court’s decision and assessing its impact on business entities’ reporting obligations. 

Next Steps:

1. Stay Informed: Keep an eye on our future communications for updates and further instructions.
2. Document Retention: Continue to maintain records related to your entity’s beneficial ownership information and any changes to it, as disclosure may be required in the future if the decision is overturned.
3. Legal Consultation: If you have any immediate concerns or questions, please feel free to reach out to us.

We remain committed to assisting you during this evolving situation. Should you have any inquiries or require clarification, do not hesitate to contact us.

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The Statute, entered into law in May 2023 as part of SB 246, introduced restrictions to the sale of real property in Florida to entities and individuals from foreign countries of concern, including The People’s Republic of China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria. Such foreign principals are prohibited from owning a “controlling interest” or acquiring “any interest” in real property located within 10 miles of military installations or critical infrastructure facilities. 

The Statute carves out an exception for a “de minimus (sic) indirect interest”, defined as an equity interest of less than 5 percent in a publicly traded company or a non-controlling interest in an entity controlled by an SEC regulated investment adviser.

The Proposed Rule adds the following very important example of what constitutes a “de minimis indirect interest”:

“a passive ownership interest of a foreign principal in an entity, provided that the foreign entity does not possess, by virtue of that ownership interest, or otherwise, the power to direct or cause the direction of the management of policies of the entity with respect to the interest in real property”.

Furthermore, the Proposed Rule expands on what a “controlling interest” in real property is with the following definition:  

“any interest other than a lease which gives the foreign principal both of the following rights…(a) the right to improve or develop the real property; and (b) the right to attach fixed or immovable structure or objects to the real property”.

Restricted foreign principals are defined as “any person who is domiciled in a foreign country of concern and is not a Citizen or lawful permanent resident of the United States” Fla. Stat. 692.201(4)(d). The Proposed Rule excludes individuals approved for the EB-5 program from this definition. 

Furthermore, the Proposed Rule defines domicile as the place in which an individual is physically present and intends to permanently reside. This addresses the situation of people holding 2 or more nationalities. For example, someone who has Cuban and Italian nationality but permanently resides in Italy would not be deemed to be domiciled in Cuba.

The Proposed Rule offers a glimpse as to how the Department of Commerce will collect reports by indicating that foreign principals will have to use Form COM-73C-60 to report relevant information. The Department indicates that reporting will transition to an online registration system, when available.

The Proposed Rule clarifies under what situation a foreign principal is required to file an updated registration by establishing five specific scenarios (R.783C-60.003(7): 

1. The real property was sold by a foreign principal
2. The real property is no longer owned by said foreign principal
3. The foreign principal’s real property is no longer located within the 10-mile radius 
4. The foreign principal no longer has an interest in said real property
5. The foreign entity no longer meets the definitional criteria for a foreign principal. 

It is worth noting that entities and individuals associated with the People’s Republic of China are subject to a specific blanket prohibition on all purchases of interests in Florida real estate. This prohibition, codified in Fla. Stat. § 692.204, is expected to be the subject of proposed rules from the Dept. of Commerce.

The Department is accepting comments to the Proposed Rule until October 11, 2023.

*Fabio Giallanza is a corporate and real estate attorney at Weiss Serota Helfman Cole + Bierman. He represents businesses and investors in the acquisition and financing of property, along with business transactions and corporate matters. Mr. Giallanza specializes in cross-border transactions involving clients based in the United States, Europe, and Latin America. 

Emma Rodgers is a legal intern in the Real Estate department at Weiss Serota Helfman Cole + Bierman and is an LL.M. candidate in Real Property Development at The University of Miami School of Law. 

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Change 1: Termination of Tenancy Without Specific Terms

Section 83.57 addresses the Termination of tenancy without specific terms, directing how either party can terminate a lease without a specific duration. Such a tenancy can be terminated by either party giving written notice to the other party within any of the following timeframes:

1. When the tenancy is from year to year, by giving not less than 60 days’ notice prior to the end of any annual period;
2. When the tenancy is from quarter to quarter, by giving not less than 30 days’ notice prior to the end of any quarterly period;
3. When the tenancy is from month to month, by giving not less than 30 days’ notice prior to the end of any monthly period; and
4. When the tenancy is from week to week, by giving not less than 7 days’ notice prior to the end of any weekly period.

Previously, 83.57(3) gave either party no less than 15 days’ notice before the end of any monthly period to terminate a month-to-month tenancy. The modification to 83.57(3), as shown above, increases the statutory requirement of notice to 30 days prior to the end of any monthly period when terminating a month-to-month tenancy. However, no change was made to when the monthly period begins and ends, remaining the date when the monthly payment is due. So, if rent is due on the 15th day of March, the notice must have been given at the latest on the 13th day of February (accounting for a 28-day month) to satisfy adequate notice of lease termination.

Change 2: Termination of Tenancy With Duration

Section 83.575 addresses Termination with a specific duration, governing how the parties to a residential lease can terminate a lease with a defined start and end date. This section contemplates a situation in which the lease agreement specifies a notice period for termination:

1. A rental agreement with a specific duration may contain a provision requiring the tenant to notify the landlord within a specified period before vacating the premises at the end of the rental agreement, if such provision requires the landlord to notify the tenant within such notice period if the rental agreement will not be renewed; however, a rental agreement may not require less than 30 days’ notice or more than 60 days’ notice from either the tenant or the landlord.

Previously, the notice period for termination of a lease with a specific duration only provided for a maximum notice of 60 days. Neither party was obligated to provide a minimum amount of notice upon termination of the lease. The revision adds a minimum amount of notice of 30 days by either party while still providing the maximum amount of days, 60, for requisite notice of termination. Here, either party must provide notice of termination a minimum of 30 days before, but may still provide 60 days notice before termination. So, if the lease renews on the 1^st of the month, the notice must have been given at least 30 Calendar days before that date, but could have been given at most 60 days prior to that date.

These changes to notice requirements are key for both the landlord and tenant in order to properly and timely terminate a residential tenancy.

The information contained in this document does not constitute legal advice. 

This client alert was written with the assistance of Emma Rodgers. Emma is a legal intern in the Real Estate division and is an LL.M. candidate in Real Property Development at The University of Miami School of Law. 

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Use of False U.S. Consulate Notarial Seals to Commit Deed Fraud: Twenty-First Century Solutions Required

By Fabio Giallanza, Coral Gables

Deed fraud has become rampant in recent years1. Scammers, posing as the owner of record of a piece of property, sell the property to an unaware third-party buyer. In addition to traditional “domestic” schemes involving the use of fake IDs, the use of fake notary seals purporting to represent the seal of a U.S. consulate has become commonly employed by fraudsters operating outside of the United States1. The scheme is seemingly a simple one, which can be illustrated through the following example:

• Fraudster scouts public records for vacant land titled in the name of individuals with an address abroad—a foreign owner would not need to grant access to a surveyor or inspector, so there is a low risk of being caught in the act.
• Fraudster lists the property for sale, either as a “for sale by owner” on real estate platforms such as Zillow or through a Florida-based real estate agent with whom they communicate via email.
• Fraudster requests a below market price to quickl attract a purchaser.
• Fraudster insists on communicating via email with all parties involved, including the closing agent, generically stating that the fraudster is abroad with no ability to communicate on the phone.
• Fraudster states that the fraudster has arranged to execute closing documents at a U.S. consulate and will deliver originals to the closing agent.
• Fraudster provides wire instructions for an account located abroad.
• Fraudster forges the owner’s signature and uses a fake notarial stamp on the documents.
• Upon receipt of the documents, the transaction closes. 

Months later, generally when the owner does not receive its notice of proposed property taxes for the following year, the owner will realize what happened. They will then have to embark in lengthy and expensive litigation to purge the fraudulent deed and reclaim title to the property. If title insurance was obtained by the purchaser, this situation will result in a claim.

One of the largest title underwriters nationally, First American Title Insurance Company (FATICO), recently issued an alert3 to its agents reminding them to stay vigilant of the various techniques employed by fraudsters to commit deed fraud.

The problem with forged consular seals, however, seems anachronistic. Consular notarial seals, as well as notary seals used in Florida, do not carry any sort of electronic validation device. This contributes, in the opinion of the author, to the widespread nature of deed fraud. Forging a stamp is likely a minor hurdle for fraudsters. Once a notary seal has been forged, it can be used multiple times, offering the opportunity to scale and repeat the fraud once another suitable property is identified.

During the COVID-19 pandemic, states rushed into offering the possibility of notarizing documents online4. This was welcome news for the real estate industry. It is striking, however, that the notarial seal used in e-notary sessions, through widely used Florida or Virginia e-notaries, do not bear an identifier that allows the public to quickly verify that the electronic seal is legitimate5.

Local secretaries of state, which oversee notarial commissions as well as corporate registries, have already been using unique identifiers and digital verification devices to allow the public to confirm the validity of good standing certificates issued for corporations6. Outside of the United States, QR codes and unique identifiers have become common practice in notarial acts and certificates issued by government authorities7. Often, the QR code leads any person with a copy of a document to a trusted government website where it will be possible to verify its validity and download an official copy.

While a technically skilled fraudster could try to devise a mechanism to emulate a government verification website, this would likely require much more time and resources than what is now required to commit deed fraud. It is high time that the U.S. secretary of state, as well as its counterparts at the state level, step up their game in the fight against fraudsters and adopt twenty-first century solutions to an old problem.

Fabio Giallanza is a corporate and real estate attorney at Weiss Serota Helfman Cole + Bierman. He represents businesses and investors in the acquisition and financing of property, along with business transactions and corporate matters. Mr. Giallanza specializes in cross-border transactions involving clients based in the United States, Europe, and Latin America.

Endnotes

1. See, e.g., Joe Gorchow, Property title thefts rampant in South Florida, business owner, property appraiser fight back, CBS Miami (21 Sept. 2022), https://www.cbsnews.com/miami/news/property-title-thefts-rampant-in-south-florida-businessowner-property-appraiser-fight-back/.?utm_source=rss&utm_medium=rss
2. Alert: Vacant Lot Scams – Beware of Notarizations Taken Abroad, The Fund, https://www.thefund.com/vacant-lotscams-abroad.aspx.?utm_source=rss&utm_medium=rss
3. National Underwriting Communication, NA-2023- 005, from the Corporate Underwriting Department of First American Title Insurance Company (24 Mar. 2023) (on file with author).
4. States Take Emergency Action On Remote Notarization And Signers’ ID, National Notary Association (25 Mar. 2020), https://www.nationalnotary.org/notary-bulletin/blog/2020/03/states-emergency-action-remote-notarization.?utm_source=rss&utm_medium=rss
5. In Virginia, it is possible to verify online the validity of a notary commission. See Secretary of the Commonwealth, Notary Commissions, https://www.commonwealth.virginia.gov/official-documents/notary-commissions/.?utm_source=rss&utm_medium=rss However, there is no publicly available method to verify the correspondence of a document to what was effectively presented to a notary, thereby creating the potential for misuse of seals.
6. See, e.g., the Florida Dep’t of State – Division of Corporations authentication tool for Certificates of Status, which are assigned a unique identifier, at https://services.sunbiz.org/Filings/CertificateOfStatus/CertificateAuthentication?utm_source=rss&utm_medium=rss. A similar service is offered by the Delaware Division of Corporations, which provides a validation tool at https://icis.corp.delaware.gov/ecorp2/services/validate.?utm_source=rss&utm_medium=rss
7. In Italy, for example, the National Council of Public Notaries (Consiglio Nazionale del Notariato) is the authority that certifies the digital signatures of public notaries. See Art. 62-bis, L. 89/1913. Digital copies of notarial acts (e.g., a document transferring real estate) bear an electronic signature of the public notary that can be verified online at vol.ca.notariato.it. On the other side of the Atlantic, with the Lei Nº 11.419, de 19 de Dezembro de 2006, Brazil established a “National Infrastructure of Public Keys” (Infraestructura de Chaves Publicas Brasileiras), which created a framework to verify digital signatories and the authenticity of public documents. An example of the application of such framework is the State of Sao Paolo’s corporate registry website, which allows one to verify the authenticity of digital copies of corporate documents online at www.jucesp.sp.gov.br.?utm_source=rss&utm_medium=rss

The post Fabio Giallanza authors an article in the Spring 2023 issue of the International Law Quarterly newsletter about the use of false U.S. Consulate Notarial Seals to Commit Deed Fraud appeared first on Weiss Serota Helfman Cole + Bierman.

On May 8, Gov. Ron DeSantis signed Senate Bill 264 codified at Chapter 2023-33, Laws of Florida (the act) into law. This new legislation introduced, among other measures, new restrictions to the sale of Florida real estate to certain foreign entities and individuals. Attorneys, title companies, brokers as well as other players in the real estate industry need to familiarize themselves with this new legislation to ensure compliance and avoid possible penalties.

S.B. 264 added a new Part III titled “Conveyances to Foreign Entities” to the existing Chapter 692 of the Florida Statutes which deals with “Conveyances by or to Particular Entities.” The new Part III includes five new sections (Fla. Stat. Sections 692.201-692.205), the first of which is a definitions section.

The act, which becomes effective July 1, prohibits the purchase of certain Florida real estate by “foreign principals” of “foreign countries of concern”, namely “the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, or the Syrian Arab Republic.”’

“Foreign principals” are very broadly defined in Section 692.201 as the government of a foreign country of concern; a member of a political party of a foreign country of concern; any foreign entity incorporated in a foreign country of concern, and, with a catch-all definition, “any person who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States.” Entities incorporated by any of the foreign principals defined above are also deemed to be a foreign principal.

Prohibition on the Acquisition of Agricultural Land—Fla. Stat. Section 692.202
Foreign principals are barred from, directly or indirectly, acquiring agricultural land. The Senate analysis cites national security and food security concerns as the rationale for this ban. In each instance in which a transfer of agricultural land takes place, a buyer’s affidavit will be required in which the buyer will attest that it is not a foreign principal and it is otherwise in compliance with the new law. From a practitioner’s standpoint, it is important to note that § 692.202, expressly states that the failure to obtain the affidavit will not create a title defect or affect insurability. This is useful guidance when representing a purchaser who is acquiring land from a foreign principal as the act seems focused only on the buy-side of the transaction. Also, the closing agent is exempted from civil or criminal liability for the noncompliance, except in the case the closing agent had actual knowledge that the buyer is a foreign principal.

Foreign principals who owned agricultural land prior to the July 1 are allowed to continue owning such land, but they will not be allowed to acquire additional land and will have until July 1, 2024, to register with the Department of Agriculture and Consumer Services. Failure to register can result in a civil penalty of $1,000 per day of noncompliance. Additionally, agricultural land acquired in violation of the ban may result in forfeiture of the property to the state. Enforcement is delegated to the Department of Agriculture and Consumer Services which is empowered to file a lis pendens and petition the circuit court of applicable jurisdiction to enter an order of forfeiture. In case of forfeiture, the state acquires the property subject to the rights of any lienholders.

Prohibition on the Acquisition of Property Near Military Installations or Critical Infrastructure—Fla. Stat. Section 692.203
Foreign principals are also prohibited from acquiring property interests, when the property lies within 10 miles of a military installation or critical infrastructure facility. The concern here is that foreign principals may use the land to monitor activities at such military installations and study vulnerabilities of critical infrastructure.

A critical infrastructure facility is defined through a list of 10 items, including electrical power plants, water treatment facilities, seaports and airports. Foreign principals that own property interests within 10 miles of a military installation or critical infrastructure facility as of July 1 will have the obligation to register with the Department of Economic Opportunity. The deadline here is Dec. 31, and a report will be deemed late if filed after Jan. 31, 2024. The civil penalty for failure to register is, again, $1,000 per day, which the Department of Economic Opportunity can collect by placing a lien against the property.

The new Section 692.203 contains a limited residential property exemption. Foreign principals can acquire residential real property, up to two acres in size, if the foreign principal holds a U.S. visa and the residential real property is not located within five miles of a military installation.

What is striking is that this exemption does not carve out high-density residential areas. This will create significant impact in the city of Doral, for example, which is home to a large Venezuelan community (many of whom are here on a visa) as well as the U.S. Southern Command.

A de minimis exemption exists for the acquisition of equity interests of publicly traded companies, when the equity interest represents less than 5% of the registered securities of the publicly traded entity. The de minimis exemption, as drafted, would not cover the acquisition of an equity interest in a closely-held business when one of the business assets (albeit ancillary) is Florida real estate. Such an acquisition by a foreign principal, at present, would be barred. The de minimis exemption also applies to the ban on agricultural land purchases discussed above.

Property can be acquired by a foreign principal by descent or through the enforcement of liens, although for a limited time. There is a requirement for a foreign principal to divest within three years after the property is so acquired (this applies also for agricultural land). In the residential context, this could lead to troubling results, for example when minor children of a foreign principal inherits an interest in residential property located within five miles of an airport. The requirement of an affidavit of compliance upon the sale of property and the potential of forfeiture are also present in this section.

Prohibition on the Acquisition of Property by Chinese Concerns—Fla. Stat. Section 692.204
The new Section 692.204 follows the structure and content of the previously discussed sections, but it extends the ban to the acquisition of all real property located within the state of Florida to entities or individuals who are domiciled in the People’s Republic of China.

Conclusions
The act will come into effect on July 1 and is certain to impact the South Florida real estate market. The requirement to register properties already owned, with steep penalties for noncompliance, will generate significant discontent if the government takes an unforgiving approach for nonwillful violations. Also, the requirement to divest properties acquired by devise or descent could be challenged on constitutional, due process grounds.

In the coming months, we can certainly expect to hear more on the effects, intended or unintended, of this new law. In the meantime, professionals in the real estate industry should do their best to stay compliant with the new legislation.

Fabio Giallanza is a corporate and real estate attorney at Weiss Serota Helfman Cole + Bierman. He represents businesses and investors in the acquisition and financing of property, along with business transactions and corporate matters. Giallanza specializes in cross-border transactions involving clients based in the United States, Europe and Latin America.

Read the original article in the Daily Business Review here.

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The post FinCEN Issues Corporate Transparency Act Final Regulations appeared first on Weiss Serota Helfman Cole + Bierman.

When the CTA became law, it gave the Secretary of Treasury a deadline of one year to implement its contents. The requirements of the CTA will be enforceable when final regulations become effective. On December 7, 2021, FinCEN issued proposed regulations (the “Proposed Regulations”) inviting comments until February 7, 2022.

When the comment period closed, FinCEN had received over 230 comments.

Who has an obligation to report?

Under the Proposed Regulations, all entities formed under the laws of a U.S. state or territory and all foreign entities registered to do business in a U.S. state or territory will have the obligation to report their beneficial ownership information.

The Proposed Regulations carve out several exceptions from the status of “reporting company.” Most significantly, entities with over 20 employees or more than $5,000,000 in gross revenue, as reflected in a federal income tax return, are not reporting companies.

In addition to disclosing beneficial ownership information, reporting companies will also have to disclose information about the “Company Applicant,” defined as the individual who files the document legally forming the entity, including any person who directs such filing. As a result, information on the decision-maker, along with information regarding who materially filed the organizational document (such as an employee of a law firm or corporate formation business), will have to be disclosed to FinCEN.

What is the content of a report?

The CTA requires disclosure of the following information for each beneficial owner of an entity:

(i) full legal name; (ii) date of birth; (iii) current, as of the date on which the report is delivered, residential or business street address

The CTA defines “beneficial owner” as any individual who, directly or indirectly, “(i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The Proposed Regulations expanded on the notion of “substantial control” by indicating that substantial control can be expressed as “(1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or the dominant majority of the board of directors (or similar body) of a reporting company; or (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.”

It is important to note that the information required to be disclosed will not be publicly available. FinCEN will have to maintain this information confidential and limit its use and dissemination for law enforcement purposes.

When is a report due?

For newly formed entities, a beneficial ownership report is due within 14 days after formation. As to existing entities, initial reports will be due within 1 year after the implementation of FinCEN’s final regulations.

When previously-filed beneficial ownership information changes (for example, as a result of a transfer or death), reporting companies will have 30 days to file an updated report.

The CTA indicates that failure to provide a report will result in a civil penalty of up to $500 for each day of noncompliance plus a fine of up to $10,000. Noncompliance can trigger more severe criminal sanctions, including up to two years’ imprisonment.

How is a report filed?

In its December 7, 2021 notice of proposed rulemaking, FinCEN indicated that in addition to its significant regulatory effort, it is designing and building a new IT system — the Beneficial Ownership Secure System, or BOSS — to collect and provide access to beneficial ownership information. So, it is expected that the filing of beneficial ownership information reports will be electronic.

The issuance of final regulations by FinCEN and their effective date remains unclear at the moment. Presumably, FinCEN will wait to have the BOSS system up and running before launching the new reporting requirements.

The information contained in this document does not constitute legal advice.

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