New rules were announced in August by the Financial Crimes Enforcement Network (FinCEN) that aim to combat money laundering in the residential real estate sector. The rules, which apply to non-financed transfers of residential properties (generally 1-4 units) to trusts, limited liability companies (LLCs) or other entities, will take effect on December 1, 2025.
FinCEN says the new rules are intended to halt the use of cash purchases and sales of residential real estate by criminals, terrorists and others to hide the illicit sources of their funds.
The rule requires “reporting persons” who perform specified closing or settlement functions in a reportable transfer of residential real property to provide information to FinCEN about the transfer, including the parties to the transaction and the property itself.
The reporting person shall be the following initial person, moving to the next person only if the prior person does not exist:
- a person listed on the closing statement as the closing agent;
- the person who prepares the closing statement;
- the person who records the deed for the transfer;
- the person who underwrites an owner's title insurance policy;
- the person who disburses the greatest amount of funds in connection with the transfer, including from an escrow account or lawyer's or other's trust account; or
- the person who prepares the deed, or if no deed, any other legal document that transfers the ownership.
Participants in a transaction can also designate someone to file the reports.
The agency says a “non-financed” transaction is one that does not involve an extension of credit to the transferees secured by the property and extended by a bank or other financial institution that is subject to federal Anti-Money-Laundering and Suspicious Activity Reporting obligations.
Potential penalties for non-compliance include substantial fines and imprisonment for willful violations.
A variety of routine transactions are exempt from the reporting requirements, including transfers upon death or divorce; transfers for no consideration made by an individual (either alone or with a spouse) to a trust of which the individual (or his spouse) is the settlor or grantor; transfers to a bankruptcy estate; and others.
The Real Estate Report to be submitted to FinCEN must include the identity of the person filing the report, the property being transferred, total consideration and any payments made, the names of the transferor and transferee; the individuals singing on behalf of any transferee entity or trust, and the beneficial owners of the transferee entity or trust. A beneficial owner is defined as a person with a 25% or greater interest or a person who exercises "substantial control."
FinCEN has published Frequently Asked Questions at https://www.fincen.gov/sites/default/files/shared/RREFAQs.pdf.
A Fact Sheet published by FinCEN provides additional information: https://www.fincen.gov/sites/default/files/shared/RREFactSheet.pdf.