On August 28, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued its “Anti-Money Laundering Regulations for Residential Real Estate Transfers” (the “Final Rule”), to become effective December 1, 2025. This Final Rule creates significant information gathering and reporting obligations for real estate professionals.[1]
According to FinCEN, the Final Rule is intended to “increase transparency, limit the ability of illicit actors to anonymously launder illicit proceeds through the American housing market, and bolster law enforcement investigative efforts.”[2]
For any residential real estate closing or settlement within the scope of the Final Rule, a “reporting person” would be required to file a “Real Estate Report” for any “reportable transfer” taking place within the United States where the following criteria are met:
- Residential real property is conveyed to a trust or an entity such as a corporation, LLC, or limited partnership.
- A “non-financed transfer” takes place, meaning financing is not both (a) extended to all transferees by a financial institution subject to Anti-Money Laundering (“AML”) and Suspicious Activity Reporting (“SAR”) requirements and (b) secured by the transferred property.
- Closing or settlement service providers are involved in the transaction.[3]
COVERED TRANSACTIONS AND EXEMPTIONS
Covered real estate transfers include any non-financed transfer of
- property in the United States containing a structure designed for occupancy by one to four families;
- vacant or unimproved land in the United States on which the transferee intends to build a structure designed for occupancy by one to four families;
- a unit designed for occupancy by one to four families within a structure on land in the United States; or
- shares in a cooperative housing corporation for which the underlying property is in the United States.[4]
Some exclusions under the proposed rule provide that certain types of transfers need not be reported. Transfers that are exempt from the reporting requirements include transfers upon death; transfers resulting from divorce or dissolution of marriage; transfers to a bankruptcy estate; and transfers for no consideration, either by the transferee alone or with the transferee’s spouse, to a trust of which the transferee, transferee’s spouse, or both are settlor or grantor.[5]
WHAT MUST BE REPORTED
Under subsections (d) through (h) of the Final Rule, the Real Estate Report must contain the legal name, address, and other tax or unique identifying information regarding the reporting person, the transferee entity or trust and its beneficial owners or trustees, the transferor, each signatory to the transfer, the real property, and closing date. The reporting person must report the consideration paid or to be paid by each transferee and the consideration to be paid in total for the property; the method of payment; and each payor’s financial institution and account number or the name on any wire, check, or other type of payment of any payor other than a transferee entity or transferee trust. Information concerning any hard money loans, private loans, or other lending arrangements not extended by a financial institution subject to AML and SAR requirements must also be disclosed in the Real Estate Report.[6]
Absent knowledge of facts that would reasonably call into question the information provided, reporting persons may rely on the accuracy of information provided by others for purposes of the Real Estate Report, except that the reportable information pertaining to each beneficial owner of a transferee must be certified by the person providing it that the information is accurate and complete to the best of that person’s knowledge.[7]
WHO MUST REPORT
To determine who must file, the proposed rule provides a “waterfall” of potential reporting persons “engaged within the United States in the provision of real estate closing and settlement services[.]”[8] Beginning at subsection (c)(1)(i) of the Final Rule, if a person within the given description is involved in the transaction, that person must file with FinCEN. If no person matches that criterion, a person fitting the description in (c)(1)(ii) is the reporting person, and so on. In making this determination under the Final Rule, the reporting person for a reportable transfer is
- the closing or settlement agent listed on the closing or settlement statement;
- if none, the person that prepared the closing or settlement statement;
- if none of the above, the person filing the deed or instrument of transfer with the recorder’s office;
- if none of the above, the underwriter of the owner’s title insurance policy for the transferee;
- if none of the above, the person dispersing the greatest amount of funds related to the transfer–including from escrow, a trust account, or a lawyer’s trust account;
- if none of the above, the person that provides an evaluation of the status of the title; or
- if none of the above, the person that prepares the deed or other legal instrument transferring ownership.
If no person fits any of the criteria on the list, the transaction is not reportable.[9] Given the sweep of these descriptions in the Final Rule and the realities of modern transactions and industry practice, however, this result would be unlikely.
If an individual is a reporting person by virtue of employment, agency, or partnership, then the reporting person is the individual’s employer, principal, or partnership.[10] A financial institution subject to AML and SAR requirements is not a reporting person.[11]
Those who would otherwise be reporting persons involved with a transaction may designate a reporting person by written agreement, provided the agreement meets certain criteria under the Final Rule and provided that a separate agreement is executed for each reportable transfer.[12] All parties to such an agreement must retain a copy of the designation agreement.[13]
WHERE AND WHEN TO FILE A REPORT
Real Estate Reports must be filed electronically via FinCEN’s website by the last day of the month after the month in which closing took place or thirty days after the closing date, whichever is later.[14]
LOOKING AHEAD
Although applicable only to a specific subset of real estate transactions that fall within its scope, the Final Rule has important implications for real estate professionals, service providers, and advisors in related fields. Time will tell if the Final Rule will be subject to legislative or administrative changes before the Effective Date, and it is quite possible that a lawsuit or lawsuits challenging the validity or enforcement of the Final Rule may be brought in the meantime.
Before the Final Rule takes effect in December of 2025, now is the time to assess how this new reporting requirement will impact your real estate transactions. Ensure your team is fully aware of the obligations under the Final Rule, begin developing internal processes to guarantee compliance, and keep current on any developments in the interim. Whether you are a real estate professional, advisor, or service provider, staying ahead of these regulations is crucial to avoiding penalties and maintaining your reputation.
[1] 31 C.F.R. § 1031.320.
[2] FinCEN Issues Final Rules to Safeguard Residential Real Estate, Investment Adviser Sectors from Illicit Finance, Financial Crimes Enforcement Network (Aug. 28, 2024), https://www.fincen.gov/news/news-releases/fincen-issues-final-rules-safeguard-residential-real-estate-investment-adviser.
[3] See 31 C.F.R. § 1031.320(a), (b), (n).
[4] 31 C.F.R. § 1031.320(b)(1).
[5] § 1031.320(b)(2).
[6] § 1031.320(h)(2).
[7] § 1031.320(k).
[8] § 1031.320(c)(1).
[9] § 1031.320(b)(2)(viii).
[10] § 1031.320(c)(2).
[11] § 1031.320(c)(3).
[12] § 1031.320(c)(4).
[13] § 1031.320(l).
[14] § 1031.320(k)(3).
