In an effort to increase transparency and deter money laundering specifically in the residential real estate sector, FinCEN has announced a final rule (the Residential Real Estate Rule) focusing on non-financed sales of residential real estate that avoid the scrutiny from financial institutions that already have anti-money laundering and countering the financing of terrorism (AML/CFT) programs in place. Similar to the Corporate Transparency Act, the Residential Real Estate Rule requires certain persons involved in reportable residential real estate closings to report information to FinCEN about the transfers and the beneficial owners of the transferee entities and trusts.

Effective December 1, 2025, the Residential Real Estate Rule will expand the scope of FinCEN’s Geographic Targeting Orders (GTOs) that required title companies to file reports identifying the beneficial owners of legal entities that purchase residential real estate without financing in certain counties and metropolitan areas. FinCEN will provide a form of the report required under the rule for the public to comment on prior to the rule’s effective date.

Reportable Residential Real Estate Transfers

A property transfer, including a gift transfer, is reportable if it meets the following requirements: (1) the transferred property is residential real property located in the United States; (2) the transfer is non-financed; (3) the property is transferred to a legal entity or trust; and (4) an exemption does not apply.

Residential Real Property

Residential real property includes single-family houses, townhouses, condominiums, cooperatives, vacant land on which the transferee intends to build a structure designed for occupancy by one to four families, and mixed use buildings that include a residence.

Non-Financed Transfer

Non-financed transfers are all cash sales or transactions that do not involve an extension of credit to all transferees that is secured by the transferred property and extended by a financial institution that is required to maintain an AML/CFT program. Transfers that are financed by a lender that does not have an obligation to maintain an AML/CFT program, such as private lenders, will be treated as a non-financed transfer and subject to the rule.

Transferee Entity or Trust

If at least one of the transferees is a legal entity, such as a limited liability company, corporation, or partnership, or a trust, the transfer must be reported. This applies to both domestic and foreign entities and trusts. Certain regulated entities are exempt such as securities reporting issuers, banks, credit unions, insurance companies, governmental authorities.

Exemptions

FinCEN has provided several exemptions from the Residential Real Estate Rule for transfers that are considered lower risk for money laundering. The following list includes examples of these exempt transfers:

1. A transfer that is a grant, transfer, or revocation of an easement;

2. A 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;

3. A transfer incident to divorce or dissolution of a marriage or civil union;

4. A transfer to a bankruptcy estate;

5. A transfer to a qualified intermediary for purposes of a like-kind exchange under Section 1031 of the Internal Revenue Code; and

6. A transfer for which there is no reporting person.

Reporting Persons

The person responsible for filing the report can be determined by one of the following ways: (1) the real estate professionals involved in the transfer can decide the professional that will file the report in a designation agreement; or (2) through FinCEN’s reporting cascade.

Under FinCEN’s reporting cascade, the person in the highest category listed below involved in the transaction will be obligated to file the report:

1. The person listed as the closing or settlement agent on the closing or settlement statement for the transfer;

2. The person that prepares the closing or settlement statement for the transfer;

3. The person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property;

4. 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;

5. 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;

6. The person that provides an evaluation of the status of the title; or

7. The person that prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.

If there is no person involved in the transaction in the above categories, the report is not required.

The reporting person is required to file a report with FinCEN about the transfer by the later of either the final day of the month following the month in which the reportable transfer occurred or thirty (30) days following the date of the closing. The reporting person must also keep a copy of any executed designation agreement and any certification, signed by the transferee or a transferee’s representative, certifying the transferee’s beneficial ownership information, for a period of five years. Reporting persons may rely on information provided by another person in the transaction as long as the reporting person does not have knowledge of facts that would reasonably call into question the reliability of the information.

Information Reported

The reporting person is required to provide the following information about the transfer:

1. The reporting person;

2. The transferee entity or trust;

3. The beneficial owners of the transferee entity or trust;

4. The individuals signing documents on behalf of the transferee entity or trust;

5. The transferor;

6. The residential real property being transferred; and

7. The total consideration and information regarding payments.

A beneficial owner of a transferee entity is an individual who, directly or indirectly, (1) owns or controls at least 25% of the transferee entity’s ownership interest, or (2) exercises substantial control over the transferee entity.

A beneficial owner of a transferee trust is an individual who (1) is the trustee, (2) has authority to dispose of trust assets, (3) is a beneficiary who is the sole permissible recipient of income and principal from the trust or who has the right to demand a distribution, (4) is a grantor or settlor who has the right to revoke the trust or withdraw the assets of the trust, or (5) is the beneficial owner of an entity or trust that holds one of the aforementioned positions.

If you would like more information on FinCEN’s Residential Real Estate Rule or any related matter, please do not hesitate to contact an attorney in GCT’s Corporate Team.