Treasury Proposes Rule to Expand Review of Real Estate Transactions Near Military Installations
July 9, 2024
The U.S. Department of the Treasury issued a Notice of Proposed Rulemaking (NPRM) that would expand its jurisdiction over certain transactions by foreign persons involving real estate in the United States.
As chair of the Committee on Foreign Investment in the United States (CFIUS), the Treasury has the authority to review certain real estate transactions near specified military installations and to act in appropriate circumstances.
This proposed rule would add over 50 military installations, across 30 states, to the existing list of installations around which CFIUS has jurisdiction, including over land purchases. This latest update would vastly expand the reach of CFIUS’s real estate jurisdiction.
CFIUS jurisdiction over real estate transactions, provided by Congress in the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), allows CFIUS to review the purchase or lease by, or concession to, a foreign person of real estate in the United States that is in close proximity to a military installation or another facility or property of the U.S. Government:
- That is sensitive for reasons relating to national security
- Could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility or property
- Could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance
The CFIUS regulations governing real estate transactions identify a subset of military installations around which certain real estate transactions are covered under CFIUS’s jurisdiction.
The U.S. Department of Defense, a member of CFIUS, continuously assesses its military installations and the geographic scope established under the CFIUS regulations to ensure appropriate application in light of national security considerations. This proposed rule is the result of a recent comprehensive assessment conducted by the Department of Defense regarding its military installations. The proposed rule would enhance CFIUS’s authorities through the following key changes:
- Expand CFIUS’s jurisdiction over real estate transactions to include those within a one-mile radius around 40 additional military installations
- Expand CFIUS’s jurisdiction over real estate transactions to include those within a 100-mile radius around 19 additional military installations
- Expand CFIUS’s jurisdiction over real estate transactions between 1 mile and 100 miles around eight military installations already listed in the regulations
- Update the names of 14 military installations already listed in the regulations to better assist the public in identifying the relevant sites; and
- Update the location of seven military installations already listed in the current regulations to better assist the public in identifying the relevant sites.
Treasury encourages the public to submit written comments in response to the proposed rule. Comments will be accepted for 30 days following the NPRM’s publication in the Federal Register.
ALTA Efforts
Real estate transactions represent approximately 13% of U.S. gross domestic product.
ALTA has created sample legislative text to help prevent the voiding of past transactions or the creation of long-term impediments to the future transfer of impacted real estate. Given the importance of real estate to the U.S. economy, ALTA believes any law regarding foreign ownership should establish specific processes and procedures to protect valid property interests and avoid penalizing legitimate sellers, creditors and future owners of property.
- Impose Obligations Directly and Only on Buyers: Only buyers and their legal representatives have sufficient information to determine property ownership eligibility. If bills require reporting of a transaction to the state or other agency, this obligation should be on the buyer directly and should not be the responsibility of any other party.
- State Laws Must Not Void Transactions: Any law must lay out a process for a forced divestment or forfeiture by a court of competent jurisdiction after a state agency brings an enforcement action. Unwinding a transaction via judicial proceeding allows legitimate interest holders and creditors (like mortgage and mechanics lienholders) to be made whole. State laws should expressly state that land titles are not invalid, impaired, or subject to forfeiture because of the foreign status of any former owner or other person having an interest in the property.
- Designate an Appropriate State Enforcement Authority: To avoid harmful complications created by invalidating property transfers, legislation should give state agencies enforcement authority, providing investigative powers and establishing due process followed by voluntary or forced divestment of the real estate as appropriate.
- Follow Existing State Divestment Procedures Like Forfeiture or Foreclosure Laws: The only remedy for violation of these laws should be a forfeiture or foreclosure type action brought by the state to divest the property, which results in an unappealable judgment.
- Safeguard the Reliability of U.S. Property Records: Relevant documents and/or court orders must be recorded by authorized state agencies within local land records. Recordation provides notice of enforcement actions and creates a continuous chain of title, which are necessary to protect future transactions.
- Protect the Neutral Role of Title Insurance and Real Estate Settlement Professionals: The foreign ownership bills should not impose obligations that would threaten the role of the title industry as a neutral third party in real estate transactions. To that end, no legislation should require title insurance companies or their employees to make a determination as to the buyer’s national identity, require reporting or the submission of data to a state agency, or impose extra-contractual, civil or criminal liability for closing a prohibited transaction in good faith.
Contact ALTA at 202-296-3671 or [email protected].