The Financial Crimes Enforcement Network (FinCEN) finalized a rule on August 28, 2024 that creates new reporting requirements for certain transfers of residential real estate. Under the new rule, transfers of residential real estate not already subject to the Anti-Money Laundering and Countering the Financing of Terrorism regulatory regime will be required to submit a Real Estate Report. The new regulations take effect on December 1, 2025. The Real Estate Report must be filed electronically with FinCEN by the final day of the month following the closing date, or thirty (30) days, whichever is longer. The person or entity required to report the transaction shall be determined based on a cascading tier of professionals involved in the transfer.
Residential real property encompasses: (1) any property in the United States with a structure intended for occupancy by one to four families; (2) vacant land in the U.S. designated for a structure meant for one to four families; or (3) shares in a cooperative housing corporation in the U.S. The proposed rule covers single-family homes, townhomes, condominiums, cooperatives, and small apartment buildings with up to four families.
The reporting requirements apply unless the transferee is an individual or an exempt entity or trust. For individuals, the property must be titled in the owner’s name to be exempt from reporting. Entities exempt from reporting include those already subject to significant data collection, such as securities issuers required to register with the SEC, depository institutions, banks, credit unions, insurance companies, subsidiaries of exempt entities, broker/dealers, and public utilities. Non-profit entities are not exempt from these requirements.
The proposed rule mandates reporting for all property transfers, regardless of value or price. This includes gratuitous transfers like gifts and transfers to trusts. However, transfers involving financed properties where the real estate secures a loan are exempt if the lending institution maintains an Anti-Money Laundering program and files Suspicious Activity Reports. Also exempt are low-risk transfers related to easements, as well as those resulting from death, divorce, or bankruptcy.
The final rule did add an additional exemption for certain estate planning transfers. Transfers of residential real property to a trust will not be reportable if: (1) the transfer is for no consideration; (2) the transferor of the property is an individual (either alone or with the individual’s spouse); and (3) the settlor or grantor of the trust is that same transferor individual, that individual’s spouse, or both of them. But FinCEN rejected comments suggesting that transfers to legal entities, such as a contribution to capital made by a partner or member, should be exempt. “FinCEN intended to scope this exception in a manner that was responsive to comments but that would not create an overly broad exception that would be open to significant abuse.”
The rule establishes a tiered system for reporting obligations. In the first tier, real estate professionals who provide settlement services must compile and file the report, typically the person listed as the closing or settlement agent. If no such agent is involved, the second tier falls to the entity underwriting the owner’s title insurance policy. If no title insurance is underwritten, the third tier goes to the person disbursing the largest amount of funds related to the transfer. If none of the first three tiers are applicable, the fourth tier is assigned to the person preparing a title evaluation. Lastly, if none of the previous tiers apply, the fifth tier applies to the person preparing the deed.
The Real Estate Report will gather information about the beneficial owners of the transferee entity or trust, based on definitions from the Corporate Transparency Act. The report must include details of any individual who, directly or indirectly, has substantial control over the transferee entity or owns at least 25% of its ownership interests. For trusts, it must identify trustees, those with authority to manage trust assets, beneficiaries with exclusive rights to income and principal, grantors or settlors of revocable trusts, and beneficial owners of entities holding these positions. However, the rule does not require reporting of changes in beneficial ownership after the initial report.
The final rule adopts a reasonable reliance standard that allows reporting persons to reasonably rely on information provided by other persons. But the reasonable reliance standard only applies to information provided by the transferee or the transferee’s representative when the person providing the information certifies the accuracy of the information in writing when the reporting person is reporting beneficial ownership information of transferee entities or transferee trusts. Although commenters argued that the standard was too vague and that reporting persons should be able to submit incomplete reports when a party to the transfer declines to provide such information, FinCEN rejected these comments because the “reasonable reliance standard is consistent with that used by certain financial institutions subject to customer due diligence requirements[,]” and that “allowing for the submission of incomplete reports could make it easier for transferees to avoid reporting requirements while also making it difficult for FinCEN to ensure compliance with the rule.”
For further questions regarding the rule, please contact Liskow attorneys Leon Rittenberg III and Kevin Naccari, Jr. and visit our Real Estate practice page.
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