FinCEN Issues Final BSA Reporting Requirements for Residential Real Estate Deals

On August 29, the Financial Crimes Enforcement Center (“FinCEN”) published Anti-Money Laundering Regulations for Residential Real Estate Transfers (“Final Rule”) regarding residential real estate. The Federal Register publication is 37 pages long. We have created a separate document which sets forth only the provisions of the Final Rule, at 31 C.F.R. § 1031.320, here.

The Final Rule institutes a new BSA reporting form – the “Real Estate Report” (“Report”) –which imposes a nation-wide reporting requirement for the details of residential real estate transactions, subject to some exceptions, in which the buyer is a covered entity or trust. As expected, FinCEN has adopted a “cascade” approach to who is responsible for filing a Report, specifically implicating – among others – title agencies, escrow companies, settlement agents, and lawyers.

Importantly, the person filing the Report may reasonably rely on information provided by others. Parties involved in a covered transaction also may agree as to who must file the Report. However, the Final Rule does not allow for incomplete reports, which likely will create practical problems.

The Final Rule does not require covered businesses to implement and maintain comprehensive anti-money laundering (“AML”) compliance programs or file Suspicious Activity Reports (“SARs”), like many other institutions covered by the Bank Secrecy Act (“BSA”). FinCEN has indicated that separate proposed rulemaking on commercial real estate transactions is forthcoming. However, the existence of a commercial element with a property does not automatically except a transfer from the Final Rule. For example, the transfer of a property that consists of a single-family residence that is located above a commercial enterprise is covered if all of the other reporting criteria are met.

FinCEN has published a Fact Sheet which summarizes the basics of the Final Rule. FinCEN also has published an eight-page set of FAQs on the Final Rule. The Final Rule will be effective on December 1, 2025. FinCEN has not yet issued a proposed form of the Report.

Background

The Final Rule has been long anticipated. For years, FinCEN issued and expanded Geographic Targeting Orders (“GTOs”), which have accumulated Beneficial Owner (“BO”) information through reports regarding the purchases of certain real estate by entities in designated U.S. jurisdictions, if they exceeded certain monetary thresholds. The GTOs were a precursor to, and instruments to obtain data to support, the newly-published Final Rule.

FinCEN issued a lengthy Advanced Notice of Proposed Rule Making (“ANPRM”) in December 2021 and Notice of Proposed Rule Making (“NPRM”) in February 2024 regarding the real estate industry. FinCEN received 164 unique comments to the NPRM from a variety of stakeholders. The Final Rule does not diverge significantly from the proposals in the NPRM.

Contents of the Real Estate Report

A Report must identify the following information:

The reporting person;
The legal entity or trust receiving ownership of the property;
The BOs 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;
The residential real property being transferred; and
Total consideration and certain information about any payments made.

Generalizing, the definition of a reportable BO for a transferee entity approximates the definition of a reportable BO for the purposes of the Corporate Transparency Act (“CTA”): a person who owns or controls at least 25 percent of the transferee’s ownership interests, or anyone who exercises “substantial control” over the transferee entity – a concept that is very broadly defined. For a transferee trust, a BO would be any individual who is a trustee or who has other, various and specifically-defined rights and powers regarding the trust or its assets. As a practical matter, many entities conducting residential real estate transactions will need to file BO information reports under the CTA upon their creation, and also will have their transactions reported under the Final Rule.

Although both the Final Rule and the CTA require collection of a BO’s name, date of birth, and address, the Final Rule differs from the CTA in that the Final Rule, unlike the CTA, (i) relies largely on TINs rather than passport numbers, and (ii) collects BOs’ citizenship information.

Importantly, the Final Rule incorporates a “reasonable reliance” standard for reporting persons, who may rely on information provided by other persons, but only if the reporting person does not know facts that would reasonably call into question the reliability of the information. The reasonable reliance standard appears to be meaningful. According to FinCEN:

FinCEN recognizes the necessity of permitting reliance on information supplied to the reporting person, considering the time and effort it would take for the reporting person to verify each piece of information independently. FinCEN believes that the reasonable reliance standard is significantly less burdensome than an alternative full verification standard, while still ensuring that obviously false or fraudulent information would not be reported.

However, as to BO information, the reasonable reliance standard applies more narrowly to information provided by the transferee or the transferee’s representative and only if the person providing the information certifies its accuracy in writing to the best of their knowledge.

Perhaps more importantly, the Final Rule does not allow the filing of incomplete reports:

(T)here is no exception from reporting under the final rule should a transferee fail to cooperate in providing information about a reportable transfer . . . (and) a reporting person who fails to report the required information about a reportable transfer could be subject to penalties. However, FinCEN will consider issuing additional public guidance to assist the financial institutions subject to these regulations in complying with their reporting obligations.

The Report: Application and Exceptions

The Report does not apply to transactions only between individuals, or to transactions in which the transferee is an individual. Rather, the Report applies only to transactions involving a covered entity or trust as the transferee, including foreign entities and trusts.

Reportable deals involve transfers pertaining to single-family houses, townhouses, condominiums, cooperatives, and buildings designed for occupancy by one to four families. The final prong of this definition (buildings designed for occupancy by one to four families) tracks language in the previously-existing definition of real estate transactions involving residential mortgage lenders and originators, to which the BSA and implementing FinCEN regulations already apply. Reportable deals also include vacant or unimproved land (depending upon whether the transferee intends to build upon the property), and shares in a cooperative housing corporation. As FAQ B.2 explains, property may fall within the parameters of the Final Rule in one of four ways:

It is real property located in the United States that includes a structure designed principally for occupancy by one to four families;
It is land in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families;
It is a unit designed principally for occupancy by one to four families within a structure on land located in the United States; and/or
It is a share in a cooperative housing corporation for which the underlying property is located on land within the United States.

The Final Rule “is not designed to require reporting of the transfer of contractual obligations other than those demonstrated by a deed or, in the case of a cooperative housing corporation, through stock, shares, membership, certificate, or other contractual agreement evidencing ownership. Therefore, the transfer of an interest in an assignment contract would not be reportable.”

The Final Rule only applies to “non-financed” transactions. That means that a covered transaction does not involve an extension of credit that is secured by the transferred property and extended by a financial institution already subject to AML program and SAR filing requirements. Stated otherwise, if the transaction involves financing by an entity which the BSA already covers, then the Final Rule does not apply. FinCEN explains:

As non-financed transfers do not involve such financial institutions, such transfers can be and have been exploited by illicit actors of all varieties, including those that pose domestic threats, such as persons engaged in fraud or organized crime, and foreign threats, such as international drug cartels, human traffickers, and corrupt political or business figures. Non-financed transfers to legal entities and trusts heighten the risk that such transfers will be used for illicit purposes. Numerous public law enforcement actions illustrate this point.

Unlike the GTOs, there is no minimum dollar threshold for a transfer to be subject to the reporting requirement. Even transfers for no consideration are covered, subject to an exception for transfers to trusts when certain criteria are met. As a result, gift transfers are covered, unless an exception applies.

A potential reporting person can rely reasonably on representations made by a financial institution that it has the requisite AML program obligations, thereby rendering the Final Rule inapplicable.

FAQ B.5 summarizes the transfers which are not subject to reporting:

A transfer that is a grant, transfer, or revocation of an easement.
A transfer resulting from the death of an individual, whether pursuant to the terms of a will, the terms of a trust, the operation of law (such as transfers resulting from intestate succession, surviving joint owners, and transfer-on-death deeds), or by contractual provision (such as transfers resulting from beneficiary designations).
A transfer incident to divorce or dissolution of a marriage or civil union (such as transfers required by a divorce settlement agreement).
A transfer made to a bankruptcy estate.
A transfer supervised by a court in the United States.
A transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, that individual’s spouse, or both, are the settlors or grantors.
A transfer to a qualified intermediary for the purposes of a like-kind exchange for purposes of Section 1031 of the Internal Revenue Code.
A transfer for which there is no reporting person.

Although transferee entities are defined broadly, there are 16 exceptions for highly regulated types of entities that, in FinCEN’s view, illicit actors are less likely to use to launder funds through residential real estate. These exceptions to the definition of transferee entities include but are not limited to entities the BSA already covers (such as banks, credit unions, money services business, and broker-dealers in securities) and securities reporting issuers – i.e., U.S. public companies. Thus, although there is no “large entity” exception, the exception for securities reporting issuers serves de facto as such an exception. Subsidiaries of exempted entities are themselves exempt. Specifically, a “legal entity controlled or wholly owned, directly or indirectly, by” an excepted legal entity is itself excluded from the definition of a transferee entity.

Transferee trusts are also defined very broadly. Unlike the CTA, trusts are covered by the Final Rule even if they are not created through a filing with a state or tribal entity. Rather, a transferee trusts is defined to mean “any legal arrangement created when a person (generally known as a settlor or grantor) places assets under the control of a trustee for the benefit of one or more persons (each generally known as a beneficiary) or for a specified purpose, as well as any legal arrangement similar in structure or function to the above, whether formed under the laws of the United States or a foreign jurisdiction.” Similarly, the proposed exceptions for transferee trusts are limited: trusts which are securities reporting issuers, trusts in which the trustee is a securities reporting issuer, or statutory trusts. Again, subsidiaries of exempt trusts are also exempt.

The Final Rule makes clear that a transferee entity can include a non-profit organization – although the reportable beneficial owners are limited to only the individuals who exercise substantial control because the owners or directors of such organizations do not have direct ownership. In regards to pooled investment vehicles (PIVs), FinCEN emphasizes that PIVs which are not registered with the SEC, such as private real estate investment trusts, certain real estate funds, special purpose financing vehicles, and private funds, may be transferee entities.

The Report: Who Files

Only one entity or person must file a Report for a particular covered transaction. As expected, the Final Rule imposes a “cascading” reporting regime by listing seven different functions which could occur in a real estate deal – the business that performs the function that appears highest on the list must file the Report. Here is the “cascading” list of responsible filers:

The person listed as the closing or settlement agent on the closing or settlement statement for the transfer;
The person that prepares the closing or settlement statement for the transfer;
The person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property;
The person that underwrites an owner’s title insurance policy for the transferee with respect to the transferred residential real property, such as a title insurance company;
The person that disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the residential real property transfer;
The person that provides an evaluation of the statute of the title; or
The person who prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property.

If none of the above functions are performed for a particular transfer, then no Report has to be filed. A financial institution with an obligation to maintain an AML program is excluded from the definition of a reporting person.

Importantly, the Final Rule provides that parties may enter into written agreements with each other in order to designate exactly who must file the Report, so long as the designated filer is one of the type of entities identified above in the cascading list (which means that a financial institution with a required AML program cannot be designated). There is no required format for a designation agreement, but the agreement must include specified information. The Final Rule “does not allow for third-party vendors who are not described in the reporting cascade to be designated as a reporting person, as such vendors are not financial institutions that can be regulated by FinCEN; a reporting person could outsource the preparation of the form to a third-party vendor, but the ultimate responsibility for the completion and filing of the report would lie with the reporting person.” A separate agreement is required for each reportable transfer.

Attorneys as Reporting Persons

The Final Rule does not exclude attorneys involved in real estate transactions from being potential reporting persons, despite commentators who urged otherwise. In the Federal Register, FinCEN explains:

. . . . FinCEN does not believe that attorneys would violate their professional ethical obligations by filing a Real Estate Report. . . . FinCEN believes that the information required in the Real Estate Report (e.g., client identity and fee information) is of a type not generally protected by the attorney-client privilege, and accordingly FinCEN is not persuaded that attorneys should be categorically excluded from the reporting cascade on that basis. . . . Similarly, FinCEN is not persuaded by commentators who argues that FinCEN lacks the authority to regulate attorneys under the BSA, claiming that the BSA does not clearly evince an intention to regulate attorneys.

Nonetheless, FinCEN states that it “expects to issue guidance that will address the rare circumstance in which an attorney is concerned about the disclosure of potentially privileged information, which will provide further information on the mechanism for asserting the attorney-client privilege and appropriately filing the relevant Real Estate Report.”

The Report: When (and Required Records)

A Report must filed by the last day of the month following the month in which the date of closing occurred, or within 30 calendar days after the date of closing, whichever is later. Thus, as a practical matter, Reports must be filed within 30 to 60 days.

The Final Rule has reduced the record keeping requirements initially proposed by the NPRM. The reporting person must maintain a copy of the BO certification by the transferee or transferee’s representative for a period of five years. The reporting person is not required to retain a copy of the filed Report, although a reporting person may want to retain a copy for its own record-keeping purposes. Any parties to a designation agreement, including the reporting person, must retain a copy of the designation agreement for a period of five years.

Penalties

The Final Rule does not set forth potential penalties for not filing Reports or filing inaccurate Reports. Rather, penalties for Report violations will track the general civil and criminal penalty regime for BSA reporting violations under 31 U.S.C. §§ 5321 and 5322. Current civil penalties (as adjusted for inflation and effective as of January 25, 2024) are $1,394 for each “negligent” violation; up to $108,489 for a pattern of negligent activity; up to $69,733 for each “willful” violation; or up to the total amount involved in a willful violation, not to exceed $278,937, if it is greater than $69,733. Criminal penalties include up to five years of imprisonment and a criminal fine of up to $250,000.

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