FinCEN Finalizes Residential Real Estate Reporting Requirements

On August 28, 2024, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) finalized a rule to require reporting of certain US residential real estate transactions (“Final Rule”). The Final Rule requires certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts. The Final Rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided—including information about the beneficial owners of the legal entities and trusts—and when a report about the transaction would be due.¹

Although largely tracking FinCEN’s proposal of February 2024, the Final Rule incorporates clarifications regarding the circumstances in which a report would need to be filed and how a reporting person would go about completing the report. Additionally, it notes that FinCEN will request public comment at a later date on the format of the report.

The Final Rule is effective December 1, 2025. In this Legal Update, we provide background on FinCEN’s approach to real estate transaction reporting requirements and summarize the Final Rule.

Background

In 1970, the US Congress passed the Currency and Foreign Transactions Reporting Act, colloquially known as the Bank Secrecy Act (BSA), which requires financial institutions to monitor and report on certain customer activity for the purpose of combating money laundering and tax evasion.²

While the BSA covers a broad range of financial institutions, FinCEN has issued regulations implementing the BSA only for a smaller subset (“covered financial institutions”). Covered financial institutions subject to FinCEN regulation include banks; casinos; money services businesses; broker-dealers; mutual funds; certain insurance companies; futures commission merchants; introducing brokers; dealers in precious metals, precious stones, or jewels; credit card system operations; certain loan and finance companies; and housing government-sponsored enterprises.³ However, many categories of persons involved in real estate closings and settlements remain outside the definition of covered financial institutions even though

FinCEN has considered adding certain market participants since at least 2003.⁴

In recent years, FinCEN has shown a particular interest in expanding the scope of the BSA to cover a wider range of transactions involving real property.⁵ Since 2016, FinCEN has issued a series of geographic targeting orders (GTOs) that require US title insurance companies to identify the natural persons behind legal entities (US and non-US) used in certain “all-cash” purchases of residential real estate and to report these persons and purchases to FinCEN.⁶

On December 6, 2021, FinCEN solicited public comment on how it should impose recordkeeping and reporting requirements on certain persons involved in all-cash real estate transactions (“2021 ANPRM”). On February 7, 2024, FinCEN issued a notice of proposed rulemaking (“2024 NPRM”) that specifically focused on reporting across the US residential real estate sector. The Final Rule largely adopts the 2024 NPRM with minor clarifications.

Final Rule

The Final Rule requires businesses, including lawyers, to collect and report information to FinCEN in a “Real Estate Report" if they perform certain closing or settlement functions for the non-financed sale or transfer of residential real property to an entity or trust. Under the Final Rule, the reporting person does not need to maintain a separate anti-money laundering (AML) program.

In a significant change from the 2024 NPRM, the Final Rule includes a reasonable reliance standard that generally allows Reporting Persons (defined below), when reporting required information or when necessary to make a compliance determination, to reasonably rely on information provided by other persons.

Below we summarize the Final Rule’s key requirements.

Reportable Transfers of Residential Real Property

The Final Rule requires reporting on various types of residential real property transfers, including transfers of single-family houses, townhouses, condominiums, and cooperatives as well as buildings and units of buildings that are designed for occupancy by one to four families. It also requires reporting on transfers of vacant or unimproved land on which the buyer intends to build a structure designed principally for occupancy by one to four families. It does not matter if the overall property is mixed use (e.g., single-family residence above a commercial enterprise). A reportable transfer includes any transfer of obligations that is demonstrated through a deed (except for cooperative housing corporations, for which different rules apply).

In the case of a reportable transfer, there is no threshold purchase price for the transfer. Likewise, transfers of ownership for which no consideration is exchanged, such as a gift, need to be reported. Exempted types of transfers are those that (i) involve an easement, (ii) occur as the result of the death of the property’s owner, (iii) are the result of a divorce or a dissolution of a marriage or civil union, (iv) are made to a bankruptcy estate, (v) are supervised by a US court, (vi) are made for no consideration from an individual to a trust that they settle or grant, or (vii) are made to a qualified intermediary for purposes of a like-kind exchange under Section 1031 of the Internal Revenue Code.⁷ Further, transfers in which there is no Reporting Person (discussed below) are exempted.

For a transfer to be reportable, it must be non-financed, meaning that it does not involve an extension of credit that is (1) secured by the transferred property and (2) extended by a covered financial institution subject to an AML program and Suspicious Activity Report (SAR) reporting obligations. A transfer involving multiple buyers would be non-financed if any single buyer’s purchase is non-financed. Transfers financed by private lenders or sellers are covered by the reporting requirement if the lender or seller is not subject to an obligation to maintain an AML compliance program and a requirement to file SARs.

FinCEN states that this broad definition of reportable transfer is needed to pick up “high-risk residential real estate transfers.” It also states that it is relying on its authority to require financial institutions to file SARs as the legal basis for the Final Rule. This raises the question of why all high-risk transfers are inherently suspicious under the BSA. If that is FinCEN’s current interpretation of the meaning of “suspicious activity,” it may need to revisit the SAR regulations for other financial institutions.

Reportable Transferees

A transfer of residential real property must be reported only if at least one of the new non-financing owners of the residential real property is a “transferee entity” or “transferee trust,” regardless of the size of their interest in the property. These categories are defined broadly to capture a wide variety of legal entities and arrangements used to own property, such as limited liability companies, corporations, partnerships, and common law and statutory trusts (except for testamentary trusts). In this regard, the scope of the Final Rule is broader than the beneficial ownership information reporting rule implementing the Corporate Transparency Act (“BOI Rule”), which is limited to legal entities.Both domestic and foreign entities and trusts are covered by the reporting requirement. Certain definitional exceptions apply for entities and arrangements that are less likely to be used by illicit actors to launder money through residential real property—highly regulated entities (e.g., securities reporting issuers, governmental authorities, banks, money services businesses, broker-dealers) and certain trusts (e.g., securities reporting issuers, trusts in which the trustee is a securities reporting issuer) that are less likely to be used by illicit actors to launder money through residential real property. These exceptions leverage the exemptions in the BOI Rule but are narrower (e.g., no exception for large operating companies).⁸

Reportable Information

At a high level, the Real Estate Report includes information about:

• The transferee entity or transferee trust⁹
• Beneficial ownership for the legal entity (transferee entity) or trust (transferee trust) receiving the property
• Individuals representing the transferee entity or transferee trust
• The business filing the report (i.e., the reporting person)
• The residential real property being sold or transferred
• The transferor (e.g., the seller)
• Any payments made, including account-level information for the source of payments

The Final Rule incorporates the definition of “beneficial owner” from FinCEN’s BOI Rule. To be a beneficial owner of a transferee entity, an individual must, either directly or indirectly, exercise “substantial control” over the transferee entity or own or control at least 25% of the transferee entity’s ownership interests.

The beneficial owner of a transferee trust is any individual who is:

• A trustee or otherwise has authority to dispose of transferee trust assets;
• A beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust;
• A grantor or settlor of a revocable trust; or
• The beneficial owner of a legal entity or trust who holds one of these aforementioned positions.

Reporting Persons

FinCEN expects that the obligation to file Real Estate Reports generally will apply to a settlement agent, title insurance agent, escrow agent, or lawyers (collectively, “Reporting Persons”).

The Final Rule designates only one Reporting Person for any given reportable transfer. The Reporting Person is identified in one of two ways: (i) by a cascading reporting order or (ii) by a written agreement among the real estate professionals (consisting of at least those persons who would have been the Reporting Person and will be the Reporting Persons) described in the cascading reporting order.

The Cascade

1. Under the cascading reporting order method, the reporting obligation rests with the person listed as the closing or settlement agent on a settlement (or closing) statement. If no person is directly identified as a closing or settlement agent on the statement, the reporting obligation falls on the person who prepared it. But, if no person prepared a closing or settlement statement, the reporting obligation falls to the person who files the deed or other instrument that transfers ownership of the residential real property.
2. In the absence of a person executing these specific settlement functions, the reporting obligation moves to the second tier of the cascade and falls on the person who underwrites the title insurance policy for the real property transfer.
3. If no person executes the specific settlement functions in the first or second tiers of the cascade, the third tier of the cascade requires reporting by the person who disburses the greatest amount of funds in connection with the residential real property transfer. This third tier only cover persons involved in real estate settlements and closings who are disbursing funds via third-party accounts and excludes direct transfers from transferees to transferors and disbursements coming directly from banks.
4. If there are no parties in the transfer who fall within the first three tiers of the cascade, the reporting obligation moves to the fourth tier: the person who prepares an evaluation of the status of the title. This evaluation may include a title check, which is typically performed by title insurance companies in lieu of providing actual insurance, or an opinion letter, which is rendered by lawyers.
5. Finally, if no person identified in the first four tiers of the cascade participates in the real property transfer, the reporting obligation falls to the final tier, the preparer of the deed associated with the transfer. A deed is typically prepared by a lawyer, but it may also be prepared by a non-attorney settlement or closing agent or by the transferee itself.

The Final Rule excludes from the definition of Reporting Person all financial institutions with an obligation to maintain an AML program. If a financial institution would have otherwise been a Reporting Person, then the reporting obligation falls to the next available person described in the reporting cascade.

Communication Between Potential Reporting Persons

For any reportable transfer, a potential Reporting Person must determine whether there is another potential Reporting Person involved in the transfer who sits higher in the cascade. Although FinCEN expects that potential Reporting Persons will communicate with each other regarding the need to file a report, there would be no requirement to verify that any other potential Reporting Person in fact filed it.

Filing Real Estate Reports and Keeping Records

Under the Final Rule, a Real Estate Report must be filed within 30 days after the date of the property’s transfer or the final day of the month following the month in which the closing occurred, whichever is later.

Unlike in the 2024 NPRM, the Reporting Person is not required to keep a copy of the Real Estate Report under the Final Rule. Instead, a Reporting Person must retain for five years a copy of any beneficial ownership certification form that it received as well as a copy of any designation agreement. Other parties to the designation agreement also need to keep copies of the agreement.

Training

As noted above, Reporting Persons are not explicitly required to maintain an AML compliance program. However, FinCEN states in the preamble to the Final Rule that it expects Reporting Persons will conduct training on compliance for the 640,000 personnel who may be affected. This could be read to imply that a failure to conduct training will be an aggravating factor if FinCEN determines that a Reporting Person has not fulfilled their reporting obligation. 

Severability

The preamble to the Final Rule includes an interesting discussion of severability. FinCEN states that if any of its provisions, or their application to any person or circumstance, are held to be invalid, other provisions and the application of the subject provisions to other persons or circumstances will remain in effect. It further states that FinCEN believes that the Final Rule can continue to function if any specific provision or application is invalidated. This seems to presuppose that the Final Rule will be challenged in court.

Takeaways

FinCEN estimates that there will be more than 172,000 Reporting Persons who will need to comply with the Final Rule and file more than 800,000 Real Estate Reports each year. More than 640,000 personnel of Reporting Persons will need to be trained on an annual basis to perform that reporting. Those personnel will need to collect millions of pieces of data and respond to a similar number of questions and, unlike in the bank sector, will be expected to explain in detail to buyers what the Final Rule requires. The immensity of this burden cannot be understated.

For some categories of Reporting Persons, such as lawyers, the Final Rule briskly dismisses the long-running debate regarding the appropriate use of FinCEN’s authority.¹⁰ The Final Rule may also raise professional responsibility and attorney-client privilege concerns when lawyers performing specified closing or settlement functions file Real Estate Reports regarding certain of their clients’ transactions. Many categories of previously unregulated market participants will be subject to extensive reporting and recordkeeping obligations. At a minimum, having good recordkeeping and a strong culture of compliance will help to ease the transition to whatever approach FinCEN eventually adopts.

In addition, FinCEN states that it will propose a format for the Real Estate Report at a later date. Given the volume of Real Estate Reports that must be filed on an annual basis (and within 30 days of closing), the December 1, 2025, compliance date may not be reasonable. Thousands of Reporting Persons will need to acquire reporting software, integrate it into business operations, and train personnel on its use. This will be extremely difficult to accomplish in a year.

Finally, the adoption of the Final Rule is another rushed step—much like FinCEN’s adoption on the same day of its AML rule for investment advisers—to close perceived regulatory gaps that could give illicit financial activity an entry point into the US financial markets. In particular, the international Financial Action Task Force (FATF) had previously rated the United States as partially or non-compliant with certain recommendations, including some related to the real estate industry.¹¹ Notwithstanding recent criticism of the lack of transparency at international regulatory organizations, FATF’s next evaluation of the United States is imminent, and FinCEN may be trying to “cram” before the “test.”

 

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¹ 89 Fed. Reg. 12,424 (Feb. 16, 2024), https://www.federalregister.gov/documents/2024/02/16/2024-02565/anti-money-laundering-regulations-for-residential-real-estate-transfers.

² 12 U.S.C. §§ 1829b, 1951-1960; 31 U.S.C. §§ 5311-5314, 5316-5336.

³ 31 C.F.R. ch. X.

⁴ See 68 Fed. Reg. 17,569 (Apr. 10, 2003).

⁵ For more information about the expansion of real estate GTOs, please see our previous Legal Update.

⁶ Press Release, FinCEN Renews and Expands Real Estate Geographic Targeting Orders (Apr. 29, 2022), https://www.fincen.gov/news/news-releases/fincen-renews-and-expands-real-estate-geographic-targeting-orders; Press Release, FinCEN Renews Real Estate Geographic Targeting Orders for 12 Metropolitan Areas (Oct. 29, 2021); Press Release, FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami (Jan. 13, 2016).

⁷ Notably, transfers made in full or partial satisfaction of a debt previously contracted, such as through work-outs or non-judicial foreclosure, would not be exempted.

⁸ FinCEN notes that the beneficial ownership information of certain legal entities is also collected under the BOI Rule but believes that the Final Rule serves a different purpose for law enforcement use because it focuses on at-risk transactions.

⁹ The Final Rule states that a unique identifying number (i.e., a taxpayer identification number (TIN)) must be provided for the transferee. FinCEN states in the preamble to the Final Rule that it rejected a suggestion to collect legal entity identifiers (LEIs) instead of TINs. This is a notable exercise of agency discretion because the Financial Data Transparency Act expressly requires the Treasury Department to collect an LEI on all regulatory reports from entities. 12 U.S.C. § 5334(c)(1)(A).

¹⁰ E.g., ABA, Gatekeeper Regulations on Attorneys, https://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/bank_secrecy_act/.

¹¹ See FATF, Mutual Evaluation Report for the United States, ch. 5 (Nov. 30, 2016).