Anonymity in Texas Real Estate

Topics Covered

Key Anonymity Questions and Goals
Status of Title and Chain of Title
Relevant Regulation and Enforcement (SARs, GTOs, and BOIRs)
Unrecorded Interests
Trusts and LLCs as Transfer Vehicles
Two-Company Structure for Liability Distancing
Anonymity Trusts
LLC Hybridized with a Trust
Assumed Name Certificates
Layered Structures
Future of Anonymity

Client Expectations

Attorneys are often asked by real estate investor clients to achieve the following:

anonymity in the chain of title
anonymity at the secretary of state and comptroller offices
no personal identifying data on official websites
asset protection and insulation from lawsuits
the ability to incur liens of record anonymously
the usual homestead tax benefits if the property is a residence and
a legal budget of $2,500 or less.

Achieving all of the foregoing is impossible, so the attorney’s first step is to temper client expectations.

Transparency Bias in U.S. Real Estate

The American system of state-level entity filings and county-level real property recordings is designed to facilitate disclosure, not concealment. This is a general institutional bias that weighs against anonymity in business and real estate transactions across the U.S. Though some states are more permissive than others, achieving anonymity has never been a simple matter. It has always taken a certain level of creativity and determination to remove one’s identity and assets from public view. Worse, anyone engaged in such anonymity efforts will encounter wariness from banks, lenders, title companies, and others from day one.

KEY QUESTIONS AND GOALS

Key Anonymity Questions

Before designing an anonymity strategy, one must ask at least four questions:

(1) From whom does one seek to be anonymous?

(2) At what level of society and government does one seek to establish anonymity?

(3) In what country or geographical area does one seek to be anonymous?

(4) What financial resources are available for achieving anonymity goals?

Our assumption here is that the United States is the locus of both operations and applicable law.

Anonymity Goals in Real Estate

Real estate investors ask three common questions relating to anonymity:

(1) How can I transfer property held in my personal name to my LLC without showing that it came from me? This pertains to the chain of title, meaning the historical sequential links between seller and buyer.

(2) How can I hold title to property without revealing that I am the true party in interest? This pertains to status of title, meaning where true ownership resides.

(3) How can I blend anonymity features with the liability shield of an LLC in order to form a more effective asset protection structure? This pushes the boundaries and may require creative techniques and multiple layers of entities to achieve.

STATUS OF TITLE AND CHAIN OF TITLE

Anonymity and the Status of Title

For purposes of this discussion, status of title refers to how title is officially stated in the county clerk’s real property records. Is title held personally and individually? Is an entity the owner? Is it community property of husband and wife?

Title to property can be held in a surprising variety of capacities—as an individual, a corporation, a limited liability company, a general or limited partnership, in a trust, and so forth—or as a combination of any of the foregoing. Property law is flexible in this respect. What if an investor wants to hold 50% of the title in a personal name, 25% in an LLC, and the remaining 25% in a family living trust? No problem. Whether or not it is wise to structure ownership in such a way is another matter (probably not).

Anonymity and the Chain of Title

In a real estate transaction, there is no effective method of defeating, ignoring, or bypassing the chain of title. Each link in the historical chain is represented by a transfer publicly recorded in the county clerk’s office—and one cannot break the chain of title and still preserve one’s status as record owner. A broken link equals questionable title, and questionable title equals unsellable property.

So what is the response to the question posed above, “How can I transfer property held in my personal name to my LLC (or other entity or person) without showing that it came from me?” The answer is: You cannot and still maintain a clean chain of title.

A creative technique is to cause the property to pass through a number of intermediate transfers so that its origin is progressively more remote in the chain. The more these intermediate transfers appear to be bona fide sales for consideration, the more likely the original transferor is to remain in the background beyond scrutiny. This is a way of stretching out the chain of title but not avoiding it. What one achieves is transactional distance—a form of relative rather than absolute anonymity.

Anonymity Prior to the Chain of Title

Anonymity as a strategy begins at the contract stage before one even enters the chain of title. Since an earnest money contract includes names and addresses, anonymity efforts begin there. If a contract has already been signed without regard to anonymity then that contract will need to be terminated and a new one written.

Although earnest money contracts are seldom recorded, they can still be the start of anonymity issues since dealing with realtors, appraisers, inspectors, surveyors, title company personnel, and neighbors is often a semi-public process—and the people involved invariably chatter. They also generate a lot of discoverable paper.

Contracts can either convey a lot of information about the parties or just a small amount of it. For instance, is there any reason to list one’s home address as opposed to a postal box? A home phone versus an office or cell phone? It is generally prudent to avoid providing more personal information than is essential to make the deal—and say nothing to a realtor that you do not expect to be shared with other participants in the process.

Including the phrase “and/or his or her assigns” following the name of the buyer in the contract provides a means of switching into the buyer’s preferred method of holding title just prior to closing. It is best to include a special provision to the effect that such an assignment made be made at any time before closing without notice to or consent by the seller.

REGULATION AND ENFORCEMENT

SARs, GTOs, and BOIRs

The use of cash and anonymity devices can attract the attention of law enforcement. For many years now, banks have been required to file suspicious activity reports (SARs) with the FBI in order to expose and prevent financial crime. Bank algorithms screen all transactions, large and small, for indicators of suspicious activity. When this is detected, SARs are automatically generated (over 50,000 each year) and sent to the federal government.

Additionally, Geographical Targeting Orders (GTOs) require reporting of suspicious behavior in real estate transactions. GTOs are in effect where money laundering is common in luxury real estate markets such as New York, Miami, and many more metro areas. Cash is especially suspect. And when it comes to the meaning of cash, the reference is not just to green folding money but includes any transaction in which a loan is not required for closing. It is interesting that society has arrived at a place where not incurring debt has become suspicious.

Beginning in 2024, FinCEN beneficial ownership reports (BOIRs, 31 CFR Chap X Part 1010) were intended to mandate disclosure of the true parties in interest behind registered entities such as LLCs, corporations, and limited partnerships. Although FinCEN beneficial ownership reporting has (for now) been suspended by the Trump administration, the long-term regulatory trend is toward greater transparency in real estate ownership, not less—especially in transactions that involve cash, foreign entities, and luxury properties.

Real Estate Gatekeepers

In formulating an anonymity strategy for real estate investing, several important participants in the process must be considered:

(1) title companies that examine and insure both status and chain of title;

(2) county clerks who maintain real property records to accurately reflect the chain of title;

(3) lenders who are subject to due-diligence rules(DDR, 81 FR 29398),expanding know-your-customer (KYC) policies, and SARs filing requirements; and

(4) real estate brokers and attorneys.

Licensed professionals are increasingly cautious about incurring liability when working with anyone pursuing anonymity. Given the tightening regulatory and enforcement environment, real estate gatekeepers can no longer be expected to be mere order-takers. They are increasingly persistent in seeking to verify the identity, source of funds, and intentions of their clients. Real estate investors pursuing anonymity should expect probing questions.
It is conceivable, perhaps inevitable, that real estate gatekeepers (including attorneys and brokers who are supposedly working for the client) will one day be required to file SARS or BOI reports with the authorities—unofficially deputizing such persons across the financial and real estate industries.

ANONYMITY: MEANS AND METHODS

Unrecorded Interests

An obvious solution to the anonymity problem is to pay cash but not record the deed in the real property records. There is no law or requirement that deeds must be recorded. Unrecorded conveyances are legal and binding between grantor and grantee, even though they are void as to a creditor or subsequent purchaser without notice of the transaction. Apex Fin. Corp. v. Garza, 155 S.W.3d 230 (Tex.App.—Dallas 2004, pet. denied).

An “unrecorded instrument is binding on [the grantor and grantee] to the instrument, on the party’s heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the [unrecorded] instrument” (Prop. Code Sec. 13.0001(b)). Unrecorded deeds are valid between the parties even if they are unnotarized, since notarization is (usually) only required if an instrument will be recorded. “As between a grantor and a grantee, deeds are valid even without a valid acknowledgement.” Haile v. Holtzclaw, 414 S.W.2d 916 (Tex. 1967).

It is likewise possible to purchase, own, and convey property without ever buying a policy of title insurance or entering the offices of a title company or lender.

The drawback for the seller when a deed is unrecorded is that the seller’s name remains both as owner in the publicly recorded chain of title and also the person to whom the appraisal district will send the tax bill.

The drawback for the buyer is that unrecorded interests are difficult to sell, at least for market value. How would a prospective buyer verify the seller’s ownership or the absence of liens? What about the recorded chain of title, since there now appears to be a break? Buyers and lenders in the real world usually want title insurance and require a valid chain of title.

Use of Transfer Vehicles

A simple method of achieving relative anonymity in the chain of title involves establishing a transfer vehicle—an LLC, for example. The first step is to establish the LLC; the second is to transfer the property into its name; the third step involves transferring an interest in the entity to some third person or entity, accomplished by means of an unrecorded sale and assignment of LLC membership interest.

As a matter of public record, the LLC continues to own the asset (no change in legal title has occurred) but the person owning the LLC has changed. There would be nothing in the real property records (chain of title) or in the appraisal district records that identifies the new principal acting behind the LLC.

A trust may also be used as a transfer vehicle. This involves: (1) establishing the trust with a written trust agreement; (2) deeding the property into the trust; and then (3) transferring the entire beneficial interest in the trust to a buyer by means of an unrecorded assignment of beneficial interest. There is no public recording indicating that the buyer (the new owner of the trust beneficial interest) is the true beneficial owner of the property.

Two-Company Structure Used for Liability Distancing

The classic two-company LLC structure for real estate investors can be adapted to achieve a partial level of anonymity. Actually, this structure is suitable not just for real estate investors but for any type of business that deals with the public and simultaneously owns hard assets.

In a two-company structure, (1) assets are held in a holding company (often a series LLC if there a multiple assets) while (2) dealings with tenants, contractors, vendors, and the public at large are conducted by a separate management company (a traditional LLC). The management company owns no meaningful assets and operates as a near shell. It is, in effect, a public target for lawsuits.

The goal of the two-company structure is separation of activities from assets. There is no more fundamental principle of asset protection.

The holding company does no business with third parties and remains largely invisible. In fact, the public should not even know that it exists. Because the holding company does no business with the public (it simply exists to hold assets) it can raise the legal defense of no privity if confronted by a lawsuit. There is no privity if a potential plaintiff has never done business with the holding company. In the American legal system, the absence of privity is almost always a strong defense, at least in the absence of actual fraud.

While the holding company in a two-company structure is not anonymous, its lack of visibility, privity with the public, and apparent connection with the management company can still achieve considerable benefits similar to those achieved by more complicated anonymity structures.

Anonymity Trusts

It is possible to take title in the name of a trust (“The ABC Trust” for example) without mention of a trustee’s name. County clerks generally accept such a deed for filing. When combined with a postal box address, this device can at least for a time (perhaps for the duration of ownership) serve to conceal the true parties in interest.

While a deed into an anonymity trust can usually be recorded without issue, the problem is that a trust (standing alone without mention of a trustee) is not a legal entity that can hold title. A trust is not an entity but a contract between trustor and trustee, each with rights and duties—and a contract cannot hold title to real property.

Problems arise when a title company is later asked to insure title as part of a proposed sale out of an anonymity trust. The title company will likely look at the existing deed and assert that a flaw exists, namely that a deed into a trust without naming the trustee fails to convey title. The title company will then insist on curative action, specifically a re-deeding of the property into the trust but this time with express mention of the trustee’s name.

Accordingly, this approach requires having a second deed in reserve that is ready to perform this function.

Specific means and methods of using anonymity trusts are discussed in a companion article entitled Anonymity Trusts in Texas Real Estate.

LLC Hybridized with a Trust

In order to increase the degree of anonymity, an LLC may be combined with a trust that acts as both sole member and manager. The trust’s mailing address can be shown as a postal box and an attorney shown as registered agent. Texas and many other states accept filings in this format without issue, both at the initial stage and later in annual LLC filings.

LLC formation documents in most states, including Texas, require only the names of initial managers, not owners. Note that the company agreement and other governing documents must be customized to accommodate the trust feature. Boilerplate will not do.

Annual filings are a different story. Texas requires disclosure of member-owners, managers, and officers. However, the trust (still located at a POB) can be shown as member-owner. Signatures on annual filings can be done by a non-principal, perhaps a lawyer or CPA if one can be found who will agree to do it. The Texas Public Information Report (PIR) requires only the title of the person signing, and the title of authorized representative seems to work fine for now.

Texas works well as a venue for this type of combined LLC/trust structure. However, at this time, the most favorable combination is a South Dakota trust utilized as member and manager of a Wyoming LLC. South Dakota permits a self-settled trust (where one can be one’s own trustee) coupled with only a two-year lookback period for wrongdoing. And Wyoming offers the least personal identifying information (nearly none) as to persons forming an LLC in that state.

In order to make the SD trust/WY LLC structure viable and defensible if attacked, it will be necessary to establish minimum contacts to create a nexus with South Dakota. This could be in the form of a cash bank account for the trust at a SD bank with perhaps $1,000 in it. Establishing a nexus with South Dakota is necessary, since it is unlikely that merely naming South Dakota in the situs clause ofthe trust agreement will be sufficient to defend against a creditor determined to show that the setup is a scam.

A common variation of this approach establishes a trust and names the LLC as beneficiary. This method is incorrect in this context. It fails the asset protection test because the liability barrier (associated with the LLC) is inside the trust. It should be outside so that it can encompass the whole of the trust and the entirety of its assets.

Assumed Name Certificates (DBAs)

Assumed names are useful for entities as a means of achieving relative anonymity in everyday business dealings. As a rule, an LLC should do as much business as possible by and through its assumed name. A bank account should be opened that shows the DBA as the primary account name. Checks should be printed that way, and contracts and leases should be signed using the assumed name whenever possible. Even though research at the county clerk’s office or the secretary of state may uncover underlying ownership, an assumed name is still an important part of the overall layering process. Going around it requires effort on the part of a potential plaintiff. In asset protection, incremental steps matter.

Can an assumed name be used to own real estate? The answer is no, a DBA cannot be used to hold title since an assumed name filing does not create an entity or legal person. It is merely public notice that someone is using a different front-name in their business transactions. A deed into an assumed name as grantee therefore means that there has been no conveyance at all.

Layered Structures

Regardless of which anonymity strategy one adopts, layering of entities may be necessary in order to maximize anonymity.

It is completely unreasonable in the digital age to expect to be able to form a single inexpensive entity that achieves both asset protection and anonymity.

Is the client’s budget $2,500 or $25,000? The international players in the Pandora Papers likely spent around $100,000 on their offshore-onshore combined structures including payments to attorneys, trustees, nominee directors, local agents, filing fees, and a bribe or two to foreign officials.

Using Attorneys for Anonymity

Attorneys are far less willing to participate in a client’s anonymity efforts than in the past. For example, more law firms are refusing to file LLC formation paperwork or act as registered agent unless all beneficial owners of the client’s entity are fully disclosed to the firm in advance of filing. Attempts to defraud attorneys are now rampant and they are alert to this.

As to client cash, it is out of the question to expect that one will be able (as in years past) to deliver a large sum of cash into a lawyer’s trust account without significant explanation and disclosure.

When it comes to trusts, no sensible lawyer will unquestioningly agree to be a trustee for a client’s trust, an attorney-in-fact in a transaction, or otherwise act as a public front for a client’s anonymous businesses and investments.

Not only is there the potential co-conspirator issue, but a trustee has no liability barrier. If the trust is sued, it is the trustee (personally and individually) who will be named as primary defendant. And yet clients continue to request that attorneys act as their trustee, usually for free.

The Future of Anonymity

Einstein taught us that traveling at lightspeed is impossible because doing so requires both infinite energy and infinite mass. A spacecraft can therefore approach this cosmic speed limit but never actually reach it. Anonymity in property ownership is a comparable concept. We should distinguish between absolute anonymity, which is may be impossible to achieve in an interconnected and regulated world, and relative anonymity, a more realistic and attainable goal.

Anonymity is not a simple business. Texas is not Switzerland or the Cayman Islands, especially after the advent of the Corporate Transparency Act and expanded FinCEN regulation. Protecting personal and financial information in real estate transactions requires creativity and a willingness to engage in non-traditional approaches.

Eventually, achieving even relative anonymity will be possible only if: (1) the buyer is legally prepared in advance with an effective entity structure built for the specific purpose; (2) the purchase price of real estate is paid in cash or crypto directly to the seller, without a gatekeeping intermediary; and (3) a title company is not used as an escrow agent or closing venue for the transaction. Outside of these parameters, the degree of available anonymity is shrinking.