By Sandra D. Mertens, Esq.
Effective March 1, 2026, a new regulation promulgated by the Financial Crimes Enforcement Network (“FinCEN”), which falls under the Department of the Treasury (“DOT”), requires a new information report each time a qualifying residential real estate transaction or settlement closes. The new regulation was not based on any recent change in the law; rather, it is the next step under the DOT’s longstanding effort to combat money laundering, terrorism financing, and other illicit financial activities. The rule requires “certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis.” 2024-19198 (89 FR 70258).
History of FinCEN’s Real Estate Reporting Rule
The efforts date back to 1970 when legislature enacted the Bank Secrecy Act, well-known for the requirements that banks maintain records of customer identities (“know your customer”) and file Cash Transaction Reports for cash transactions exceeding $10,000. In 1986, Congress enacted the Money Laundering Control Act, which established money laundering as a crime and strengthened government oversight of banks and their customers. In 1999, Congress enacted the Gramm-Leach-Bliley Act (a.k.a. the Financial Services Modernization Act), which governed how banks share information and safeguard sensitive data. In the wake of the September 11, 2001 terrorist attacks, Congress enacted the USA Patriot Act, focusing on money laundering, requiring enhanced due diligence, and imposing new obligations on financial institutions to monitor and combat foreign and domestic transactions to combat counter-terrorist financing.
The Anti-Money Laundering Act of 2020 followed with similar goals of security through transparency. Many readers may recall the Corporate Transparency Act piece of the law, which was delayed for years in imposing reporting obligations, and then severely pruned after its first year of reporting due to significant pushback from the business community.
On February 7, 2024, in the wake of the Corporate Transparency Act uproar, FinCEN quietly published a proposed rule imposing new residential real estate reporting. The rule became final on August 28, 2024. Reports were initially due beginning December 1, 2025; however, the effective date was pushed back to March 1, 2025. FinCEN cites as its authority 31 U.S.C. §5318(h), covering anti-money laundering programs and granting the DOT authority to “prescribe minimum standards for programs” required by financial institutions “to guard against money laundering and the financing of terrorism through financial institutions.” FinCEN deems the real estate industry to fall under its authority because the term “financial institution” is defined to include “persons involved in real estate closings and settlements.” 31 U.S.C. 5312(a)(2)(U).
FinCEN’s New Rule on Residential Real Estate Reporting
The final rule was published as a regulation under 31 C.F.R. 1031.320, distributed in 89 FR 70258. The regulation refers to “reportable transfers,” which must be reported to FinCEN by “the reporting person.” Apparently, the DOT deems real estate closings and settlements to be “high risk for illicit financial activity – namely, non-financed transactions of residential real property to legal entities and trusts.” 2024-19198 (89 FR 70258). Although FinCEN has been authorized to regulate this industry for years, FinCEN historically exempted “persons involved in real estate closings and settlements” from comprehensive regulation. However, “information received in response to FinCEN’s geographic targeting orders relating to non-financed transfers of residential real estate (“Residential Real Estate GTOs”) has demonstrated the need for increased transparency and further regulation.” 2024-19198 (89 FR 70258). Specifically, FinCEN is targeting “criminals and corrupt officials who abuse opaque legal entities and trusts to launder ill-gotten gains through transfers of residential real estate.” Id. Therefore, the reportable information is similar to the Corporate Transparency Act: beneficial ownership information for certain legal entities and trusts.
What Transactions are Reportable?
Under the new regulation, “a reportable transfer is a non-financed transfer to a transferee entity or transferee trust of an ownership interest in residential real property.” 31 C.F.R. §1031.320(b)(1). This definition necessarily excludes transfers involving mortgages or other financing, as well as transfers to individuals. It also excludes transfers of commercial property and other types of property, such as personal property or intellectual property. For example, the sale of a company’s assets may generate a reporting obligation if those assets include residential real property and other requirements are met; however, a sale of stock in a company holding such assets would not necessarily generate a reporting obligation.
Additional exclusions are found in the definitions, where certain types of entities are not “transferee entities” or “transferee trusts,” usually due to the entity being regulated by the federal government under a different law (e.g., certain securities businesses and banks). 31 C.F.R. §1031.320(n)(10)-(11). Statutory trusts are also excluded.
A reportable transfer is exempt if it is a: “(i) grant, transfer, or revocation of an easement; (ii) transfer resulting from the death of an individual, whether pursuant to the terms of a decedent’s will or the terms of a trust, the operation of law, or by contractual provision; (iii) transfer incident to divorce or dissolution of a marriage or civil union; (iv) transfer to a bankruptcy estate; (v) transfer supervised by a court in the United States; (vi) transfer for no consideration made by an individual, either alone or with the individual’s spouse, to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor(s); (vii) transfer to a qualified intermediary for purposes of [a 1031 deferred exchange]; or (viii) transfer for which there is no reporting person.” 31 C.F.R. §1031.320(b)(2). These exemptions cover common real estate transfers for no consideration or where there is a low risk of the transfer being made with illicit purpose. For example, common estate planning technique may recommend an individual transfer his or her real estate to a living trust, which is purposed to avoid probate, preserve the confidentiality of beneficiary names, or for such other non-criminal purposes. In many cases, such transfer would be exempt under the (vi) exemption as a transfer to a grantor trust for no consideration. However, transfers to other trust types may not be exempt.
Who is a Reporting Person Obligated to File an Information Return?
The “reporting person” is one person in a hierarchy of possible individuals and entities. In most cases, the “reporting person” will be “the person listed as the closing or settlement agent on the closing or settlement statement for the transfer.” 31 C.F.R. §1031.320(c)(1)(i). If there is no such person, it could be “the person that prepares the closing or settlement statement for the transfer,” or “the person that files with the recordation office the deed or other instrument that transfers ownership,” or “the person that underwrites an owner’s title insurance policy,” or “the person that disburses . . . the greatest amount of funds,” or “the person that provides an evaluation of the status of the title,” or “the person who prepares the deed or . . . legal instrument that transfers ownership of the residential real property.” 31 C.F.R. §1031.320(c)(1)(ii)-(vii). Therefore, the “reporting person” could include the closing agent, underwriter, virtually any employee of a title company, or even an attorney on the transaction. Notably, attorneys are not on the list of exclusions from being considered a “reporting person.” In fact, FinCEN’s final rule confirms that attorneys are not exempt from the reporting requirements. 2024-19198 (89 FR 70258).
Nevertheless, if the individual who would otherwise be a “reporting person” is an employee, agent, or partner acting within the scope of his or her employment, then that person’s employer, principal, or partnership is deemed to be the “reporting person.” 31 C.F.R. §1031.320(c)(2). This means that the title company itself will usually be the “reporting person” liable for reporting at the entity level; alternatively, it could be the law firm itself employing an attorney.
Interestingly, although the authority for the rule stems from the Bank Secrecy Act and related laws, “a financial institution that has an obligation to maintain an anti-money laundering program . . . is not a reporting person for purposes of this section.” 31 C.F.R. §1031.320(c)(3).
Who is a Beneficial Owner of an Entity or Trust?
Beneficial owners of transferee entities are generally defined by the guidelines in the Corporate Transparency Act, including persons who have “actual control” through sufficient ownership interests (at least 25%), “substantial control” through title or influence, or “any other form of substantial control over the reporting company.” 31 C.F.R. §1031.320(n)(1)(i), referencing 31 C.F.R. 1010.380(d). Under this definition, there could be one or many beneficial owners.
Beneficial owners of transferee trusts include: (a) the trustee, (b) an individual with the authority to dispose of transferee trust assets, (c) a beneficiary who is the sole permissible recipient of income and principal from the trust or a right to demand a distribution or withdrawal of substantially all assets of the trust, (d) a grantor or settlor who has the right to revoke the trust or withdraw the assets, or (e) a beneficial owner of a legal entity or trust who holds a position referenced in (a)-(d). 31 C.F.R. §1031.320(n)(ii).
What Information is Required to be Reported to FinCEN?
- Information about the “reporting person,” including the person’s legal name, address, and reporting category.
- Information about the transferee entity or trust, including the transferee’s full legal name and trade name, address, details about the trust instrument if applicable, a taxpayer I.D., and details about each beneficial owner of the transferee.
- Information about the beneficial owners and the signer of the real estate closing documents, including their full name, date of birth, residential address, citizenship, a taxpayer I.D. or other unique number if foreign, capacity and role in the transferee, and the category of beneficial owner.
- Information about the transferor (same as above).
- Information about the property, including the address, legal description, and date of closing.
- Information about the payment(s), including the total consideration paid, the amount of each payment, the method by which each payment was made, the name of the transferring financial institution and account number, and the name of the payor on the check or wire if made by another party.
- Information about any credit extended by a person who is not a financial institution with reporting obligations under the Bank Secrecy Act, such as private loans or “hard money.”
31 C.F.R. §1031.320(d)-(i).
When and How Should the Report be Filed?
FinCEN has a Real Estate Report form available on its website, which is required to be filed electronically with FinCEN by the later of: (i) the final day of the month following the month in which the date of closing occurred, or (ii) 30 calendar days after the closing date. 31 C.F.R. §1031.320(k).
Civil Liabilities and Criminal Consequences
A “reporting person” is obligated to maintain certain records relating to the Real Estate Report, including a copy of a certification made by customers regarding beneficial ownership information or designation agreements. 31 C.F.R. §1031.320(l).
However, a “reporting person” is entitled to “reasonable reliance” upon information provided by other persons, so long as he or she has no knowledge of facts contrary to the reliability of information provided. The reporting person may obtain a certification about the beneficial ownership information certifying the accuracy of the information in writing to the best of the person’s knowledge. 31 C.F.R. §1031.320(j).
Unlike the Corporate Transparency Act, the new Residential Real Estate Reporting regulation does not include specific enforcement mechanisms. However, FinCEN has indicated that it has the authority to enforce violations through both civil and criminal mechanisms under the Bank Secrecy Act. Negligence violations of the final rule may invoke civil penalties of not more than $1,394 for each violation, with an additional civil money penalty of up to $108,489 for a pattern of negligent activity. See 31 U.S.C. §5321. Willful violations could result in a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both. See 31 U.S.C. §5322. Willful violations could also result in a civil penalty of not more than the greater of the amount involved in the transaction (not to exceed $278,937), or $69,733. See 31 U.S.C. §5321; 31 C.F.R. §1010.821. These figures are adjusted for inflation.
Conclusion
FinCEN’s new reporting requirement for residential real estate transactions will likely change the way title company and real estate attorneys conduct transactions. Already, we are seeing nationwide title companies require parties to a transaction complete disclosure certifications so that the title company can paper the basis for their “reasonable reliance” and determine whether reporting is required. The challenge will be for smaller title companies and attorneys who assist with such transfers but may not be as familiar with FinCEN’s disclosure requirements or reporting systems. Similarly, family offices or real estate companies that handle many transactions in-house may face exposure to FinCEN’s new rule and consequences for non-compliance. These potential “reporting persons” may want to partner with a tax professional to ensure the FinCEN reporting obligations are met or to develop “reasonable reliance” protocols for client transactions.
Additionally, all real estate professionals may wish to monitor the situation as reporting gets underway beginning March 1, 2026. There has been, and may continue to be, pushback from the real estate industry on the new reporting obligation. As cases progress through the litigation process, we may see FinCEN’s reporting process change or adapt to the industry, similar to the Corporate Transparency Act.
Contact
Sandra D. Mertens is a Partner at Schoenberg Finkel Beederman Bell Glazer LLC, and may be contacted at (312) 648-2300 or [email protected].
This article has been updated as of March 2, 2026.
