^{Legal Alerts |} FinCEN Reporting Requirements on Certain Residential Real Estate Transfers

On August 29, 2024, the United States Financial Crimes Enforcement Network (“FinCEN”) promulgated a final rule, the “Anti-Money Laundering Regulations for Residential Real Estate Transfers” (the “Rule”), that takes effect on December 1, 2025.[1] The Rule requires certain reporting persons to file a Real Estate Report (the “Report”) to FinCEN on non-financed transfers of certain residential real estate when the transferee is an entity of a trust. Negligent violations of the Rule may result in civil penalties of $1,394 per violation and an additional civil penalty of up to $108,489 for a pattern of negligent violations (dollar amounts are calculated as of the date of publication of the Rule).[2] Willful violations of the Rule could result in criminal penalties of up to five years’ imprisonment and/or up to $250,000 in criminal fines and additional civil penalty of, as of the date of publication of the Rule, not more than the greater of the amount involved in the transaction (not to exceed $278,937) or $69,733.[3]

Covered Transfers

• Summary: The Rule covers non-financed transfers of RRE to Transferee Entities and Transferee Trusts regardless of the existence or amount of consideration for such transfer.
  
• Residential Real Estate (“RRE“): RRE includes real estate located in the United States that are: (1) residences intended for occupancy by one to four families, including single-family homes, townhouses, condominiums, and apartment buildings designed for occupancy by one to four families; (2) vacant land on which the transferee intends to build a structure intended for occupancy by one to four families; (3) a unit designed for one to four family occupancy within a structure (ex: a condo within a larger building or a single family dwelling in a mixed use building); or (4) a share in a cooperative housing corporation.
  
• Non-financed Transfers: Non-financed transfers are defined as transfers that do not involve an extension of credit to all transferees which is (1) secured by the subject property and (2) extended by a financial institution that is subject to an Anti-Money Laundering  program and Suspicious Activity Report obligations. Non-financed Transfers include non-bank private lenders.
  
• Transferee Entities: A Transferee Entity is a legal entity other than a Transferee Trust or an individual. This includes corporations, partnerships, estates, associations, or limited liability companies, both foreign and domestic.
  • However, certain highly regulated entities are exempt from the definition of Transferee Entities under the Rule such as:
    • Securities reporting issuers; governmental authorities; banks; credit unions; depository institution holding companies; money services businesses; brokers or dealers in securities; securities exchange or clearing agencies; other exchange act registered entities; insurance companies; state-licensed insurance producers; Commodity Exchange Act registered entities; public utilities; financial market utilities; registered investment companies; or subsidiaries of an exempted entity.
      
• Transferee Trusts: A Transferee Trust is any arrangement created where a grantor or settlor places assets under the control of a trustee for the benefit of one or more beneficiaries or for a specified purpose. This also includes similar foreign legal arrangements.
  • However, certain highly regulated trusts are exempt such as:
    • Securities reporting issuers; trustees that are a securities reporting issuer; statutory trusts (these trusts are treated as Transferee Entities, not Transferee Trusts); or subsidiaries of exempted trusts.

Exempt Transfers

• Summary: The Rule exempts certain transfers of RRE from reporting that FinCEN does not deem as high-risk transfers for money laundering, such as:
  • Easement transfers; transfers resulting from death by will, trust, contract, or operation of law; transfers incident to divorce; bankruptcy estate transfers; transfers to individuals; transfers supervised by a court in the United States; transfers for no consideration to certain trusts; transfers to a qualified intermediary as part of an exchange under Section 1031 of the Internal Revenue Code; and transfers lacking a Reporting Person.

Who is Responsible for Reporting

• Summary: “Reporting Persons” are the individuals deemed responsible for submitting the Report to FinCEN, and only one Reporting Person exists per any reportable transfer. Generally, settlement agents, title insurance agents, escrow agents, and attorneys will be obligated to file the Report. To determine who the Reporting Person is, one can use the “reporting cascade” or real estate professionals within the cascade can decide amongst themselves.
  
• Reporting Cascade: The reporting cascade is a list of seven functions where the individual who performs the highest order on the list (one being higher than seven) is deemed the Reporting Person. The list of seven functions proceeds as follows:
  • (1) The closing/settlement agent listed on the closing/settlement statement; (2) the person preparing the closing/settlement statement; (3) the person who submits the deed for recording; (4) the title insurance underwriter for the transferee’s owner’s policy; (5) the person who disburses the greatest amount of the funds; (6) the person who evaluates the status of title; and (7) the person who prepares the deed or other instrument transferring title.
    
• Real Estate Professional’s Discretion: Alternatively, the Rule allows for real estate professionals on any part of the reporting cascade to enter into a written Designation Agreement that designates another person within the reporting cascade as the Reporting Person.
  • These Designation Agreements transfer compliance liability to a designated Reporting Person in the cascade, and a separate agreement is required for each transaction. Third party contractors can be used to file the Report on the Reporting Person’s behalf; however, compliance liability is not transferred to that third party and the Reporting Person remains liable for a failure to file.

Reporting Information, Reasonable Reliance, and Reporting Deadlines

• Reporting Information:[4]
  • Generally, for Transfers to Transferee Entities/Trusts: (1) The Reporting Person’s identifying information; (2) the Transferee Entity/Trust receiving ownership of the RRE; (3) the beneficial owners of the Transferee Entity/Trust; (4) certain individuals signing documents on behalf of the Transferee Entity/Trust; (5) the transferor; (6) the RRE being transferred; and (7) total consideration and certain information about any payments made.
    
• Reasonable Reliance: Reporting Persons may rely on information provided by another person for purposes of reporting information or making necessary determinations to comply with the Rule. However, the Reporting Person may only utilize this reliance if they lack factual knowledge that would reasonably question the reliability of the information being relied upon.
  • The standard is more limited when a Reporting Person is reporting beneficial ownership information of Transferee Entities or Trusts. In those situations, reasonable reliance only applies to information provided by the transferee or their representative and only if the person providing the information certifies the information’s accuracy in writing to the best of their knowledge.
    
• Reporting Deadlines: The Report must be filed by the later of:
  • The final day of the following month after which the closing occurred, or
  • Thirty calendar days after the date of closing.

Record Retention Requirements

• Requirements: The Reporting Person must keep a copy of the certification of the transferee’s beneficial ownership information signed by the transferee or transferee’s representative and a copy of the signed Designation Agreement for five years. The Report does not need to be retained.
  • Additionally, other parties to the Designation Agreement must also keep copies of the Designation Agreement for five years.

Note on Challenges

• It is important to note that certain legislative actions and legal challenges could affect or nullify the Rule. On February 5, 2025, a Senate Joint Resolution was introduced by Senator Mike Lee stating that Congress disapproves of the Rule and that the Rule shall have no force or effect. [5] On February 12, 2025, a House Joint Resolution was introduced by Representative Andrew Clyde also stating that Congress disapproves of the Rule and that the Rule shall have no force or effect.[6] However, as of June 20, 2025, neither resolution has been passed by a committee or either house of Congress. Further, a lawsuit to block the Rule has been filed in the US District Court for the Eastern District of Texas in Flowers Title Companies LLC v. Bessent.
  

[1] 31 C.F.R. § 1031.320.

[2] 31 U.S.C. § 5321.

[3] 31 U.S.C. § 5321; 31 C.F.R. § 1010.821.

[4] Refer to the Rule regarding what is included in each category of reporting information. Also, note that information required for Transferee Entities is not the same as information required for Transferee Trusts.

[5] A joint resolution disapproving the rule submitted by the Financial Crimes Enforcement Network relating to “Anti-Money Laundering Regulations for Residential Real Estate Transfers”, S.J. Res. 15, 119th Cong. (2025-2026).

[6] Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Financial Crimes Enforcement Network relating to “Anti-Money Laundering Regulations for Residential Real Estate Transfers”, H.J.Res.55 — 119th Congress (2025-2026).