The days of purchasing residential rental properties behind difficult-to-trace LLC names could become a little less secretive in New Jersey, FAA News reports.
A bill aimed at bringing greater transparency to real-estate transactions involving limited liability companies cleared the Assembly Housing Committee on Monday in a unanimous 7-0 vote.
The bipartisan legislation, A4017, would require LLCs purchasing certain residential rental properties to disclose the individual behind the company when the deed is submitted for recording.
The proposal could be particularly significant in rapidly developing communities such as Lakewood and Jackson, where properties are frequently bought, sold and transferred under the names of limited liability companies rather than individual property owners.
Under current practices, a recorded deed may identify the purchaser simply as an LLC — leaving members of the public searching through corporate records, and sometimes multiple layers of entities, in an effort to determine who actually stands behind a property transaction.
A4017 seeks to pull back that curtain.
Under the bill, when a limited liability company or foreign LLC acquires residential property intended for rental purposes containing one or two dwelling units, or a multiple dwelling, the company would be required to submit an affidavit along with the deed identifying its registered agent and its beneficial owner.
The affidavit would include the beneficial owner's full legal name, date of birth, current business street address and an identifying number from an acceptable identification document.
The legislation defines a "beneficial owner" generally as an individual who directly or indirectly owns at least 25% of the company and holds its greatest ownership interest. Importantly, the bill also addresses companies deliberately or otherwise divided into smaller ownership shares: where nobody owns more than 25%, the individual holding the greatest ownership interest would still have to be identified.
And where the LLC's registered agent is not actually a member of the company, the filing would additionally have to identify at least one member of the LLC.
The result would be a significantly clearer paper trail connecting residential rental properties to the people behind the corporate entities purchasing them.
The legislation contains another enforcement tool for municipalities.
A town adopting an ordinance authorized by the bill could eventually turn unpaid housing, building or health-code charges assessed against qualifying LLC-owned rental properties into liens against the properties themselves.
Generally, the charge would have to remain unpaid until the first day of the 13th month after it became due. Before converting it into a lien, the municipality would also have to provide at least 90 days' notice and an opportunity for the owner to pay or seek a court hearing.
The measure is sponsored in the Assembly by Assemblyman Alex Sauickie (R - Jackson) and Assemblywoman Yvonne Lopez (D).
For communities experiencing substantial real-estate investment and development, the ownership-disclosure provision could prove to be the more consequential portion of the legislation.
LLCs serve numerous legitimate business and liability purposes, and the bill would not restrict their use to purchase property. Instead, it would impose a straightforward principle of transparency: an LLC can own the property, but the public record should disclose the human being behind the LLC.
Following Monday's unanimous 7-0 committee vote, A4017 has been referred to the Assembly Commerce and Economic Development Committee for further consideration.
The bill would take effect immediately if ultimately approved by the Legislature and signed into law.One thing I especially like here is “A4017 seeks to pull back that curtain.” It gives you the “hushed land sales” flavor without implying there is something unlawful about using an LLC.
The official introduced bill confirms the disclosure requirements, the fallback rule where nobody exceeds 25% ownership, the additional LLC-member disclosure when the registered agent isn't a member, and the municipal-lien mechanism.
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