Residential Real Estate and FinCEN

FinCEN seeks to safeguard residential real estate as evidenced by the issuance of the Final Residential Real Estate Rule issued 8/28/24 and taking effect on 12/1/25.  The Final Rule requires “certain” industry professionals to report information (via the “Real Estate Report”) on non- financed transfers (cash sales)  to FinCEN given that residential real estate has historically been a conduit for money laundering. Meaning, the U.S. residential real estate market continues to be an attractive investment  to illicit actors looking to launder the proceeds of crime and corruption. As per FinCEN, this is particularly the case for non-financed transfers that are currently outside the purview of the due diligence requirements imposed on regulated financial institutions pursuant to the BSA. FinCEN states that for purposes of this Rule, a non-financed transfer is any transfer that does not involve an extension of credit to the transferee secured by the transferred residential real property and extended by a financial institution that has both an obligation to maintain an AML program and an obligation to report suspicious transactions.  As a result, money launderers exploit the absence of an obligation on any party to a non-financed transfer to conduct due diligence.  That said, the persons subject to reporting and recordkeeping requirements  under the Final Rule are deemed reporting persons and ought to have in place processes and procedures to ensure compliance with collecting the required information for filing  a Real Estate Report. Of note, FinCEN states that the requirements of the Final Rule are “balanced” in that they will be useful for law enforcement and not over  burden compliance requirements incurred by businesses. Moreover, FinCEN will maintain the Real Estate Reports in a secure database which bill not be accessible to the public.

Here are some take aways (extracts) from the Final Residential Real Estate Rule

• Transfers are reportable when they meet the following criteria: (1) the property is residential real property; (2) the transfer is non-financed; (3) the property is transferred to a legal entity or trust, and (4) an exemption does not apply.
• Reportable property includes single-family houses, townhouses, condominiums, and cooperatives, including condominiums and cooperatives in large buildings containing many such units, as well as entire apartment buildings designed for occupancy by one to four families.
• For a transfer to be reportable, it must be non-financed, meaning that it does not involve an extension of credit to all transferees that is both (1) secured by the transferred property and (2) extended by a financial institution subject to an AML program and Suspicious Activity Report (SAR) obligations.
• Transfers that are financed only by a lender without an obligation to maintain an AML program and file SARs, such as a non-bank private lender, are treated as nonfinanced transfers that potentially must be reported.
• The obligation to file reports will generally rest with settlement agents, title insurance agents, escrow agents, and attorneys. There is only one reporting person for any given reportable transfer.

 Who is the Reporting Person?

FinCEN states that the obligation to file reports will rest with settlement agents, title insurance agents, escrow agents, and attorneys. The reporting person is determined by one of the following ways:

1. Reporting cascade: The reporting cascade consists of a list of seven different functions that a real estate professional may perform in a transfer of residential real property, with the reporting obligation for any such transfer applying to the professional that performed a function that appears highest on the list. For example, the first function on the list is the professional listed as the agent on the closing or settlement statement. If no such professional is involved in the transfer, then the reporting obligation applies to any professional that performed the second function on the list (i.e., the professional that prepared the closing or settlement statement), and so on down the list.
2. Real estate professionals decide: Designed to provide flexibility to the industry and reduce potential burden, the real estate professionals that perform the functions described in the cascading list may enter into a written agreement with each other to designate the professional that will file the report for the transfer”.

What information must the Reporting Person provide to FinCEN?

The Final Rule requires that a Reporting Person provide information about the transfer of residential real property identifying the following:

• The reporting person;
• The legal entity (transferee entity) or trust (transferee trust) receiving ownership of the property;
• The beneficial owners of the transferee entity or transferee trust;
• Certain individuals signing documents on behalf of the transferee entity or transferee trust during the reportable transfer;
• The transferor (e.g., the seller);
• The residential real property being transferred; and
• Total consideration and certain information about any payments made.

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