Protecting the Privacy of the High Profile Purchaser
January 15, 2011
A Favorite Pastime
Although we are only talking about one percent of real estate sales in New York City, spend a few minutes online with any of the news, entertainment or media venues, and one thing becomes abundantly clear—there is a bottomless pit of enthusiasm for celebrity real estate. That would include the who, where, how much and whether the seller or the buyer got the best part of the deal. Gossip notwithstanding, serious issues arise in protecting the privacy and insuring the safety of a public figure or other high profile purchaser who is buying a co-op or condo.
ACRIS Knows All
Thanks to New York City’s Automatic City Register Information System, known as “ACRIS”, once a deed and accompanying transfer tax documents are recorded, it becomes a public document accessible via the Internet. So after a deed becomes “of record”, anyone and everyone will know which apartment was transferred and the purchase price of the unit (inferred from the amount of transfer tax that has been paid). Co-ops are different as there is no deed recorded, but the transfer tax documents are of record, and the names of the parties and the purchase price are revealed once the transfer tax documents are submitted and accepted by the New York City Department of Finance. As Joe Lewis once said, “you can run, but you can’t hide”.
Cat and Mouse
As you might expect, folks in the media watch ACRIS daily to find the big transactions, and hopefully, the names of the parties involved in the transfer. Since those of us assigned the duty of protecting privacy and safety know this happens, every effort is made to shield the identity of the beneficial owner of the property by removing the name of the purchaser from all documents that will eventually be recorded in ACRIS. The further away from the execution process the better.
First, a Few Words About Co-ops
Irrespective of how high up the economic food chain one might be, most co-ops will require full disclosure of tax returns and related financial documentation. There are exceptions, and sometimes documents are reviewed “in camera”, but in most cases, every co-op Board member will review the documentation. In addition, both the brokers and the managing agent will be handling the documents, so there are any number of people who will have access to the paperwork. Although Board packages eventually get shredded, it is considerably more difficult to limit disclosure of information when a co-op is involved. Further, since most co-ops are allergic to ownership by business entities, protecting the beneficial owner is just more difficult with cooperative transactions. There is no question that most folks in the process are sensitive to privacy concerns, but if absolute anonymity is the goal, the condo purchase is clearly the better way to go for a number of reasons.
One Reason Why New Construction is Actually a Good Idea
When purchasing a new construction unit, virtually no information is required from the buyer. Other than a pen and a lot of money, in most cases, the buyer can acquire the apartment with minimal or no disclosure of personal or financial information. This phenomenon is also true with most sponsor transactions long after the construction is completed. If the buyer goes into contract in the name of an entity, the beneficial owner of the entity will not be revealed in documents that are recorded on ACRIS. Sometimes the developer will require a personal guaranty of the entity’s obligations to pay monthly common charges. But that guaranty document is an internal piece of paper that no one “should” see.
Condos Yearn to be Co-ops
To go from one extreme to the other, even though a Condo Board can only exercise a “Right of First Refusal” and really can’t “turn down” an intended purchaser, many condos require extensive Board packages that mimic what a co-op Board application looks like. Background checks and security notwithstanding, since a condo Board can’t turn down a buyer, there is clearly an absurdity to the documentation that most condos require before the Board issues its waiver. So on the one hand, purchasers of the most expensive newly constructed apartments on the planet require no disclosure and the typical meat and potatoes condo purchase in Manhattan requires extensive disclosure. I mention this anomaly because purchasers seeking privacy may be in for a big surprise when purchasing an after market condo. In most cases, they will be required to submit extensive personal and financial data in the same manner as would be required in a co-op purchase.
Take Away: If a condo buyer does not or will not agree to extensive disclosure of personal and financial information at the time of application, that predisposition must be known to the broker before the contract is signed.
Privacy Short List
Considering the above, if you want to protect your privacy to the greatest extent possible, keep the following five suggestions in mind:
- Look at purchasing a new construction condo or other sponsor-owned unit through the use of an entity.
- Make sure any other condo you are considering will agree to accept limited disclosure of your personal and financial information.
- Look for a co-op that will allow the purchase by a revocable trust or other business entity.
- Remember to stay as far away from the document execution process as is possible.
- If possible and where appropriate, use a non-disclosure agreement with penalties to insure that privacy will be maintained.
Residential Reality: It’s Not Easy, But it Can be Done
We live in a world where privacy is an illusion and doesn’t really exist for most of us. That being said, at least when it comes to purchasing real estate, steps can be taken to minimize disclosure when privacy is required.