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I have heard, that in the United States, some individuals are able to conceal their identities from the public when purchasing a home by setting up a LLC and buying the house through the said corporation.
Is this true? and can someone explain how this might work?
Remark: I ask the question, for it seems to me that it should not be difficult to find out who the owner of any given LLC is.
Is this true?
Yes.
can someone explain how this might work?
You can form an LLC, and then fund it with money that would be used to purchase the home, and buy the home in the name of the LLC.
One minor exception is that a handful of rural U.S. states prohibit limited liability entities from owning farm land, so if the home is part of a farm or ranch, this could be prohibited in those states.
If there is a mortgage, this is more difficult, but not impossibly so. The primary debtor on the mortgage would be the LLC. Ordinarily the owner of the LLC would be required by the bank to guarantee the mortgage, but loan guarantees do not necessarily have to be made a matter of public record.
If the LLC has only one member, it is disregarded for income tax purposes, so that isn't a problem. There may be issues in this case of a house not qualifying for residential property tax treatment in some cases (which is often a lower rate than commercial real estate). There is also sometimes an issue that property owned by an LLC isn't eligible for a "homestead exemption" of equity in the home from creditor's claims. It may also be treated differently in terms of eligibility for means-tested benefits like Medicaid nursing home coverage. But, it is allowed.
I ask the question, for it seems to me that it should not be difficult to find out who the owner of any given LLC is.
In the U.S., the owners of a manager managed LLC are rarely disclosed in the public record (although about half of U.S. states require one or all of the members of a member managed LLC to be disclosed). But all U.S. states allow LLCs to be manager managed.
Also, all U.S. states are required as a matter of constitutional law to all LLCs organized in a state other than the state where the LLC owns real property or operates to do business in that state. States can imposed regulations on out of state LLCs to some extent, however.
The main exception to these general rules is California.
Although the California Articles of Organization do not list the members of the LLC in the Artiles, California requires the LLC to file a Statement of Information within 90 days of the approval of the LLC. The Statement of Information does require a list of the LLC's members, and it does become public record.
Records of LLC ownership are maintained in the private internal records of the LLC. A contact person, called a registered agent and sometimes the managers of the LLC with authority to act on its behalf must be publicly disclosed, but neither of these posts has anything to do with ownership. Many states also require the "organizer" of the LLC to be disclosed, but that doesn't have to be an owner of the LLC either. Often it is a lawyer or accountant for the LLC.
It will be necessary to disclose the ownership to federal tax officials, and often also to state tax officials.
Also, soon, under a newly enacted federal law that has not yet taken effect because regulations have not been written, to federal money laundering officials.
But, both of these pieces of information are confidential and not available to the general public. This information can be obtained by subpoena in pertinent litigation, however, must often be disclosed when filing federal lawsuits, and is often required to be disclosed by counter-parties in business transactions.
Footnote
The U.S. practice is not the global norm. In most civil law countries, for example, ownership interests in entities need to be reflected in a notarized document kept in the custody of the notary involved. In recent times, interests in transparency and avoiding tax evasion and money laundering for terrorism and crime have promoted additional, less decentralized records of entity ownership.
This would not work in england-and-wales because companies are required (with some limited exceptions) to publish in a public register all "people with significant control" under Part 21A of the Companies Act 2006. You are a person with significant control if you meet any of the conditions in Schedule 1A. These include:
However, you can achieve anonymity in other ways. There is not yet a public register of domestic beneficial owners of property or a public register of trusts. Such public registers are planned for the (possibly near) future however.
By hiring a professional trustee (e.g. a solicitor) to purchase the property on your behalf, that person holds the legal interest and appears on public registers (e.g. the Land Registry). With a correctly drafted trust deed, you own the beneficial interest and are the effective owner in all but name (including the right at any time to collapse the trust and acquire the legal interest). Disadvantages include professional fees and potential difficulties with mortgage lenders (many of whom forbid trusts in their terms and conditions).
I have heard, that in the United States, some individuals are able to conceal their identities from the public when purchasing a home by setting up a LLC and buying the house through the said corporation.
Is this true? and can someone explain how this might work?
Yes, that's correct, and I've done it successfully.
When I used it, my purpose was privacy - we needed to buy three properties, and we were pinned - no other properties would do. We had two sworn enemies (it was personal) both of whom were expert real-estate traders in our county, and would have locked up the other two properties just to spite us. We got all three, catching them totally by surprise.
And yes, we were opaque. They couldn't have guessed who we were.
First we must talk about Registered Agents. In order to proceed in a lawsuit, you must serve the other party with notice of the suit. You may have heard of private citizens delaying lawsuits by hiding from the process server. The state won't let you do that with a corporation or LLC. You must have an office with a physical address -- staffed Monday-Friday 9-5 so a process server is assured of finding a person there to serve papers on.
Obviously a "small shop" or holding company doesn't have the resources to do that. So they hire a Registered Agent, a company whose One Job is to staff a desk those hours and contact you if they receive anything. This Registered Agent is the keystone of the deal.
You'd think private mailbox firms like The UPS Store/Mailboxes Etc. would be naturals at being Registered Agents - but I rarely see that. The Wyoming one I used was someone's house (at least at the time of the 20/20 TV investigation of them; I lost my mind when they showed a list of aged LLCs just for drama and there was mine.)
Certain states do not not publish the owners or managers of LLCs. Wyoming is a popular one, so let's go with it. And remember. Your goal isn't just to keep the info private, but to demoralize anyone who's even trying. Thus it helps to use the more famous states, so they stop immediately and give up.
You can hit the Wyoming (or whichever state)'s Corporations website and DIY all the paperwork. But you still need to find a Registered Agent. Knowing this, many Registered Agents in popular LLC states have all the templates ready to set up the LLC for you very cheaply, while also giving you Registered Agent services. Find someone who holds themselves out to do this, one-stop shop and done.
Ongoing, you will pay the Wyoming (or whoever) annual registration fee which is very modest, and the annual fee of the Registered Agent (a few hundred dollars a year).
Next, to do business in YOUR state, you must register as a Foreign LLC in that state. "Foreign" means you're from another state. And you guessed it! Your state will also require a Registered Agent in your state. So you will have two. So you will have a second registration fee.
Ongoing, you will also pay your home-state annual registration fee (often trivial; sometimes outrageous, I think California is $1000-ish?) as well as pay the annual costs of a Registered Agent in your state also.
Now you may think "I can hire a national Registered Agent firm that does this in many states. One stop shop." Maybe. But since that firm does business in your state, they must answer subpoenas from your state courts. That foreign-state Registered Agent, maybe not!
So you do have a considerable annual maintenance expense; 95% of which (in most states) is the cost of two Registered Agents.
Back in our day this amounted to about $500/year. Probably pushing $1000/year now. So do you really want this thing? is a question you ought to ask.
LLCs aren't just for privacy. They are also liability shields. Properly managed, the owners and managers can't be sued for the liabilities of the LLC - they can't lose any more money than they willfully invested into it. So it is a liability stop-loss.
Here's the problem. Mortgage lenders aren't going to like that, because if the mortgage isn't paid, they have no recourse whatsoever against anyone except assets in the LLC and the secured property itself, of course. So they are looking at the value of the property (in a potential downturn market) versus the money lent. And they may be reluctant to write a mortgage without a human co-signer.
I don't know how this goes because we paid cash. However, the issue is that liens are recorded - they are public record at the courthouse. Depending on the state, the lien may expose the name of the human co-signing.
