A key component of the bill is to tack a human face onto property transactions.
Increasingly in Ohio, property investors are taking advantage of a loophole in state law whereby they create an LLC to buy up, transfer or hold onto properties without their legal names being attached to the investment. They can then transfer and sell those LLCs as businesses, not as properties, to sidestep county auditor’s conveyance fees.
While LLCs are registered with the Ohio Secretary of State, oftentimes the only person listed under that LLC is the lawyer who submitted the paperwork, not the owner themselves.
According to Warren County Auditor Matt Nolan, this obfuscation makes it difficult to track down who actually owns Ohio properties, to trace where a tenant’s rent goes, or who to contact if a property is out of code, goes against zoning laws, or is generally a nuisance.
Nolan explained that a person could easily buy up various properties and hold them under a newly created LLC. If the owner then wanted to sell a single property but hold onto the rest, they could create a new LLC, transfer the property from one LLC to the other, and then sell the new LLC without any of the records actually coming across the county auditor’s radar.
“(Under this loophole,) no one knows that you bought this property. It doesn’t change anything on the auditor’s website. There’s no way to trace it, so it could be foreign national companies, it could be multinational companies, it could be anybody,” said Nolan. “We have no way of knowing that through the process that’s in place now.”
The process is closer to buying and selling companies than it is to actually buying and selling properties, Nolan said, and it’s the reason behind the creation of an unknowable amount LLCs in Ohio.
“(The) LLC is being created for the sole purpose of holding property. They’re not doing anything. They’re not generating jobs. They’re not doing anything. They’re just sitting there to hold properties and skirt the current system that we have,” Nolan said.
S.B. 245 hopes to rectify this loophole by requiring that an LLC buying a property “must identify a natural person who owns or controls” that LLC, according to the legislature’s nonpartisan analysis of the bill.
“This would simply allow us to know what human person is behind the ownership structure of the LLC, or a point person,” explained Sen. Michelle Reynolds, R-Canal Winchester, who cosponsored the bill and chairs the Senate Select Committee on Housing. “...There has to be a person that you could reach with respect to the ownership of the structure.”
While Nolan agreed that such a notification is a good step, he worries that any mandates to notify the auditor of a buyer’s actual identity are in vain if these property purchases continue to sidestep the auditor’s office altogether by continuing to exploit the LLC loophole.
“From the auditors’ perspective, the biggest thing is that we don’t see properties being transferred,” Nolan said. “Until we close that loophole, the problem will exist.”
Deliberations on S.B. 245 have only just begun. It’s next committee hearing will be on May 22.
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Avery Kreemer can be reached at 614-981-1422, on X, via email, or you can drop him a comment/tip with the survey below.
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