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Comment by VirusNewbie | Hacker News Reader

This was incredibly apparent to me when I recently bought a house.

The seller was foreign, and had picked and escrow company that hadn't been in business for long. I was originally worried it was a scam and someone was trying to run off with my money, but that wasn't the gig.

The two owners of the escrow company had owned multiple other escrow companies that were shut down. No complaints against them, so it's not like they were taking people's money and running.

The escrow 'company' didn't have any sort of need for a paper trail of where money came from when buying my house. I imagine if I had shown up with a suitcase full of cash speckled with blood and coke they wouldn't have cared.

There's likely no record of where all the money came from for me, (tech money) nor any of the other foreign buyers they regularly service. They're likely shut down again and opened with a new name.

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I think folks get a bit confused here.

The escrow company generally should do proper KYC work, and does fall under AML/CFT directives.

But the where did your money come from (that some folks are used to) comes from LENDER requirements.

Lenders underwrite based on a set of facts, ideally backed up by what actually happens in escrow. So if the escrow company get's a wire from a hard money lender instead of from your bank (same $100K) that's going to be a big difference in lender eval prior to funding (they don't want you borrowing your money from another lender - usually a sign you faked your ability to save, increased DTI etc).

>The escrow company generally should do proper KYC work, and does fall under AML/CFT directives.

I'm claiming that some of the escrow companies are only in business for a short period of time, only to pop up under a different name with one or two of the owners being different. Wouldn't that mitigate a lot of the risk of non compliance?

It's not anyone elses business where the money came from! If you were engaged in crime then the investigations of the actual crimes can eventually catch up with you. Expecting crime to get caught by surveilling your finances when you have no reason to be suspected of a crime is like expecting to scan your private correspondence for evidence of a crime.

That's a fair opinion, but the law conflicts with that opinion in many places: https://en.wikipedia.org/wiki/Know_your_customer#Laws_by_cou...

KYC doesn’t mean you have to interrogate your customer about how they earned their money.

You are correct. What you describe is called proof of source of funds and also should be required for high value transactions.

It depends on the jurisdiction and the particular transaction.

In the US, for instance:

> financial institutions covered by the final rule must take reasonable steps to: [...] (3) determine the source(s) of funds deposited into the private banking account and the purpose and expected use of the account;

https://www.fincen.gov/fact-sheet-section-312-usa-patriot-ac...

> financial institutions covered

being key...

Yep. For instance:

> banking institutions;

It does, actually. FinCEN does not fuck around.

Source: just finished renewing my AML training

It does. I was cautioned that due to FINcen "you cannot buy a house with crypto", luckily all of the gains I had made were tracked by a "sufficiently reputable" platform that it wasn't an issue.

Wait, was that for a mortgage? I bought a house outright with cash that had been moved from Gemini (US crypto exchange) to Schwab less than two weeks before and the title company never had any questions about it.

Throwaway for obvious reasons.

Yes, sorry, I should have specified, that is what my lender said for banking operations. I presume you can buy a house with cash from crypto.

It is quite literally the lender’s business, as their decision to lend to you is absolutely contingent upon their confidence that the money came from a legitimate, stable source.

Not to nitpick, but the "stable" part isn't necessarily true. If the money is just being used for a down payment, and not being cited as recurring income, they wouldn't care whether it's stable.

Side note: I still can't make sense of why lenders care about the money's source being legitimate but the title company doesn't, per my experience: https://news.ycombinator.com/item?id=28163885

Well, I was conflating two things for simplicity’s sake.

They care that the down payment came from legitimate savings with a documented history, to ensure it’s not from another loan they’re not aware of.

And they care that your reported income is stable (you’re reliably employed with a reasonably predictable income stream) so they can reasonably expect you’ll continue to be able to make monthly payments.

>It's not anyone else's business where the money came from!

Oh yes it is - that's pretty much the definition of anti money laundering and many many people are involved in trying to figure that.

FYI, the seller didn't choose the escrow company.

Either your agent/attorney or the seller's agent/attorney did.

And you had the legal right to choose the company providing almost all of those services. Well, in most states you do. Federal law provides that you can choose a subset of them.

We recently sold a home. We did choose the escrow company. Neither we, nor the buyers, used an agent/attorney. We did the same thing when buying our new house. No agents or attorneys involved and the sellers chose the escrow company. These days, with the Internet, it really is tremendously easy to fill out all the paperwork correctly and do everything yourself. The total time we spent from beginning to end was a few hours total, which saved tens of thousands of dollars on each transaction. 10/10 I’d forgo using an agent/attorney next time as well.

Not only that, you absolutely should shop the optional services (like title, escrow, etc.) We saved thousands in fees because me and my agent made a couple of phone calls to get competing bids after the seller (really the sellers agent) tried to direct us to a very expensive set of options.

I would guess that in both cases, the buyer could have stepped in and said "no, use XYZ escrow service".

The general idea is that the person that pays the fee at closing is the person that gets to choose the service provider.

I could say more about the various "incentives" that some of the service providers offer to be the "default", but, well, I don't want to do that ;)

Nope. As a seller, that’s a big nope. If you want my property, I choose the title company. End of story.

Go for it. But unless you pay (or it is a cash-only deal), it's a violation of federal law and the buyer can come after you later on for 3x the cost. End of story.

https://www.law.cornell.edu/uscode/text/12/2608

Oh wow, I've only ever sold to cash buyers & come to think of it my preferred title company wasn't even a point of negotiation. I suppose it does protect the buyer more, I just like working with a competent and fast title company

To be fair, there doesn't have to be a trail in my opinion. I think most financial crimes today are executed with eyes on everything.

Of course there is money laundering, but the ideas circulating Europe about restricting cash are idiotic policies for activities sake.

>The escrow 'company' didn't have any sort of need for a paper trail of where money came from when buying my house.

Why in the world would they? I’ve bought and sold lots of properties, and that has happened literally zero times ever. If the escrow company asked me where my money came from, I’d tell them to get fucked and I’d use a different company. It’s absolutely none of their business.

That's not my point. My point is there is now no record of where the money came from, anywhere.

If I go deposit 500k in a TDAmeritrade account or at Wells Fargo, you can bet it's going to be sent out to the IRS or have a flag flipped somewhere and that transaction is going to be recorded.

Why would TDA report a deposit to the IRS? If it’s cash over 10k sure, but otherwise…

They're required to investigate and possibly file a suspicious activity report if they thought a transaction or a series of transactions was (wait for it...) suspicious. They might simply believe "there is no way this guy has $500k." This kind of report doesn't necessarily result in any kind of action that the client will notice, even if the investigators decide to pass it on to the government.

This is all governed by laws like the Bank Secrecy Act. There's been a push in recent years to make it personal with bank personnel, who are reminded that they're subject to civil and criminal penalties if they look the other way and knowingly let the wrong kind of transaction through.

So if I make a large deposit they probably won’t worry about it, but if a black guy does, maybe that’s a different story?

Great.

Do you feel like you understand the banking system well enough to make a comment like that? I'm still just describing the basics to you. There's ample information online, so have at it...

If the funds come from another account in your name and are not cash very unlikely for there to be further reporting, there already is a good paper trail.

Escrow companies keep good records as well on flows in and out on a file. So checkable if needed.

But what i'm saying is all these escrow companies used to buy multi-million dollar houses are out of business. they don't exist anymore. Did they transfer their records to some government agency?

Adding on, would anyone expect ex-employees from these dead companies to hold onto the paper work endlessly and produce it when asked?

The current owners just do some extra paperwork that asserts the original papertrail that was lost, basically that's it. The downside is that it usually results in a significantly lower sale price if you try to sell down the road because there is a risk of contested ownership that will result in legal fees or losing the property (very rare). I did work for what I later learned were shady real estate/escrow companies some years back, maybe it changed since then.

Interesting and good point!

The bank records usually include a file number reference, but obviously less detailed.

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