The proposed rule would require businesses, including attorneys, performing specified closing or settlement functions for the nonfinanced sale or transfer of residential real property to an entity or trust to collect and report information to FinCEN.
On February 16, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking titled Anti-Money Laundering Regulations for Residential Real Estate Transfers. The proposed rule, if adopted, would impose reporting and recordkeeping requirements on certain persons involved in real estate closings and settlements for nonfinanced residential real estate transactions. Among the information required to be disclosed is beneficial ownership information, which is mandated by the Corporate Transparency Act.
“Residential real estate” is defined as:
- Real property located in the United States containing a structure designed principally for occupancy by one to four families;
- Vacant or unimproved land located in the United States zoned, or for which a permit has been issued, for the construction of a structure designed principally for occupancy by one to four families; or
- Shares in a cooperative housing corporation.
The purpose of the rule is to address money laundering and illicit financial crimes involving real estate. FinCEN is concerned that illicit actors favor nonfinanced transfers or “all-cash” sales of residential real estate that avoid scrutiny from financial institutions that have anti-money laundering (AML) programs and Suspicious Activity Report (SAR) filing requirements under the Bank Secrecy Act and obscure their identities by holding residential real estate in the name of a legal entity or trust. These types of transfers have been identified as vulnerable to money laundering, and FinCEN believes that the risk of illicit activity is sufficient to require reporting.
The proposed rule would require businesses, including attorneys, performing specified closing or settlement functions for the nonfinanced sale or transfer of residential real property to an entity or trust to collect and report information to FinCEN. This information includes:
- Beneficial ownership information for the legal entity (transferee entity) or trust (transferee trust) receiving the property;
- Information about individuals representing the transferee entity or transferee trust;
- Information about the business filing the report (the reporting person);
- Information about the residential real property being sold or transferred;
- Information about the transferor (e.g., the seller); and
- Information about any payments made.
The proposed rule requires that a modified SAR be filed for any sale or transfer of residential real property that meets the requirements outlined in the proposed rule no later than 30 days after the date of closing. As such, no discretionary decisions would be needed in determining when to file a report. Furthermore, the reporting person would not need to maintain an AML program. The modified SAR that would be used for reporting purposes would be known as a “Real Estate Report.” FinCEN hopes to provide a separate opportunity later in 2024 for the public to comment on the form of the report. The comment period for the proposed rule closed on April 16, 2024, and we await the final rule.
FinCEN’s concerns relating to these recordkeeping requirements are also reflected in FinCEN’s long-running Residential Real Estate Geographic Targeting Order (GTO) Program, which requires title insurance companies to file reports identifying the beneficial owners of legal entities that make certain nonfinanced purchases of residential real estate in select jurisdictions in the United States. The GTO program was renewed on April 17, 2024. Under the program, U.S. title insurance companies are required to identify the natural persons behind shell companies used in nonfinanced purchases of residential real estate in certain counties and major U.S. metropolitan areas in California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New York, Texas, Washington, Virginia and the District of Columbia. The purchase amount threshold under the GTO is $300,000 for each covered metropolitan area, with the exception of the city and county of Baltimore, where the threshold is $50,000.
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For More Information
If you have any questions about this Alert, please contact George J. Kroculick, Joel N. Ephross, any of the attorneys in our Real Estate Practice Group, any of the attorneys in our Corporate Transparency Act Group or the attorney in the firm with whom you are regularly in contact.
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