War In Ukraine Can Affect U.S. Real Estate Transactions
As we watch the news each night, we see images of the devastating war in Ukraine. Millions of Ukrainian citizens have been displaced from their homes and are now considered refugees. The humanitarian crisis grows every day. It’s hard to imagine how such suffering can reach our daily business transactions here at home, but it can.
To combat Russian aggression, President Biden has levied sanctions against Russia and Russian citizens that prohibit the transfer or dealing with “property and interests that are in the United States or come within the possession of any United States person or companies or persons” determined to be operating in regions of Ukraine. The Office of Foreign Assets Control (OFAC) has blocked dealings with a large group of Russian-related companies, persons, and banks.
Read broadly, these executive orders can have chilling effects on U.S. real estate transactions. Russian nationals have invested heavily in U.S. real estate and South Florida is a favorite place for Russian investment. In fact, Russians and Ukrainians make up a large portion of the population of Sunny Isles, a small town of luxurious condominiums on the ocean in Northeast Miami-Dade County. The Miami Herald recently reported that many Russian Oligarchs have bought multi-million dollar condos in Sunny Isles using shell companies, but never occupy the units. These condos remain dark at all times and are known throughout South Florida as “ghost condos.”
Why should we be concerned? As the Biden sanctions take hold, the Ruble continues to fall and become worthless, many of these condo units may find their way to market through sale or lease. Any transactions are prohibited. U.S. dollars can’t be paid to Russians.
How do you know who you might be buying from or selling to? In any purchase, a contract should have an OFAC representation, even in a FAR/BAR form, stating that both the Seller and Buyer are not on the OFAC list of prohibited parties. This is a typical representation in commercial contracts and leases and loan documents and should now be common in residential contracts, particularly in Sunny Isles and other known Russian neighborhoods. In addition, where an individual is the seller, a FIRPTA representation is appropriate to assure that withholding for a foreign seller will be made, and to obtain a social security number to assure that you aren’t dealing with a non U.S. person.
When an entity is involved, remember that South Florida remains subject to FinCen Geo Targeting Order. Closing Agents are obligated to provide the identity of the owners of the entity on a property worth $300,000 or more. The seller can’t hide behind the corporate veil in South Florida.
Knowingly violating the sanctions carries civil and criminal penalties. Parties to a transaction can’t bury their heads in the sand. Be proactive to determine who is on the other side of the transaction, to protect yourself and Ukraine.