On August 29, 2024, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury adopted a final rule (the “Real Estate Rule”) that will require professionals involved in residential real estate transfers to report information about the beneficial ownership of the transferee. The Real Estate Rule will be published at 31 CFR 1031.320 and will take effect on December 1, 2025.

Background

Illicit actors engage in non-financed transfers (including “all-cash” sales) of residential real estate to avoid scrutiny from financial institutions that have anti-money laundering (AML) and countering the financing of terrorism (CFT) program and Suspicious Activity Report (SAR) filing requirements under the Bank Secrecy Act1. Illicit actors also often hold residential real estate in the name of a legal entity or trust to obscure their identities and their ownership interests in the property. Transfers that are both non-financed and involve a transferee that is a legal entity or trust are of higher risk for money laundering and make the proceeds of crime and their owners more difficult to track and identify. FinCEN hopes that its Real Estate Rule will help curtail the anonymous laundering of illicit proceeds through such residential real estate transactions.

Under its authority under the Bank Secrecy Act, FinCEN for several years has issued Residential Real Estate Geographic Targeting Orders (GTOs)—that have required title insurance companies to file reports identifying the beneficial owners of legal entities that make certain non-financed purchases of residential real estate in select jurisdictions in the United States. The Real Estate Rule will replace the GTO program with a nationwide transparency reporting program.

Summary of the Real Estate Rule

The Real Estate Rule requires “reporting persons” performing specified closing or settlement functions in certain reportable transfers of residential real property to report specified information to FinCEN about the transfer. The reported information includes details about the parties to the transfer and the property itself.

Reportable Transfers of Residential Real Property

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

A reportable transfer must be reported regardless of the purchase price or the value of the property. Gift transfers are thus subject to the rule. However, transfers made directly to an individual are not covered by the rule.

Definition of Residential Real Property

The Real Estate Rule applies only to residential real property located in the United States. Reportable property includes single-family houses, townhouses, condominiums, and cooperatives, including condominiums and cooperatives in large buildings containing many such units, as well as entire apartment buildings designed for occupancy by one to four families. The rule also requires reporting on transfers of land, such as vacant or unimproved land, on which the transferee intends to build a structure designed for occupancy by one to four families. Furthermore, a transfer of property may be reportable even if the property is mixed use, such as a single-family residence that is located above a commercial enterprise.

Definition of Non-Financed Transfer

For a transfer to be reportable, it must be non-financed, meaning that it does not involve an extension of credit to all transferees that is both (1) secured by the transferred property and (2) extended by a financial institution subject to an AML program and Suspicious Activity Report (SAR) obligation. Transfers that are financed only by a lender without an obligation to maintain an AML program and file SARs, such as a non-bank private lender, are treated as non-financed transfers and are potentially reportable.

Definitions of Transferee Entity and Transfer Trust

A transfer of residential real property must be reported if at least one of the new owners of residential real property is a “transferee entity” or “transferee trust.” These terms include legal vehicles commonly used to own property, such as limited liability companies, corporations, partnerships, and trusts. Both domestic and foreign entities and trusts are covered by the reporting requirement.

Certain definitional exemptions apply to highly regulated types of legal entities and trusts that are less likely to be used by illicit actors to launder money through residential real property.

Exemptions from Reporting

The Real Estate Rule exempts certain common, lower-risk transfers. A reportable transfer does not include:

  • a transfer of an easement;
  • 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;
  • a transfer incident to divorce or dissolution of a marriage or civil union;
  • a transfer to a bankruptcy estate;
  • a transfer supervised by a court in the United States;
  • a transfer made for no consideration by an individual, either alone or with their spouse, to a trust of which that individual, their spouse, or both of them, is the settlor or grantor;
  • a transfer to a qualified intermediary for purposes of a like-kind exchange under Section 1031 of the Internal Revenue Code; and
  • a transfer for which there is no reporting person.

Determination of Reporting Persons

FinCEN believes that the obligation to file reports will generally rest with settlement agents, title insurance agents, escrow agents, and attorneys. Each reportable transfer must have only one reporting person.

The reporting person must be determined in one of the following ways:

  • Reporting cascade: The reporting cascade is a list of seven different functions that a real estate professional may perform during a transfer of residential real property. The reporting person for any transfer is the professional who performed a function that appears highest on the list. For example, the first function on the list is the agent on the closing or settlement statement. If no such agent is involved in the transfer, the reporting obligation shifts to the professional who performed the second function on the list (i.e., the professional who prepared the closing or settlement statement), and so on down the list.
  • Real estate professionals decide: The Real Estate Rule provides transaction participants the flexibility to agree among themselves who will act as the reporting person. As provided in the rule, real estate professionals who perform the functions described in the cascading list may enter into a written agreement with each other to designate the professional who will file the report for the transfer.

Required Information

The Real Estate Rule requires that a reporting person provide the following information about a reportable transfer:

  • The reporting person;
  • The legal entity (transferee entity) or trust (transferee trust) receiving ownership of the property;
  • The beneficial owners 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 (e.g., the seller);
  • The residential real property is being transferred; and
  • Total consideration and certain information about any payments made.

Beneficial owners of transferee entities: An individual is a beneficial owner of a transferee entity if that individual either (a) directly or indirectly, exercises “substantial control” over the transferee entity, or (b) owns or controls at least 25 percent of the transferee entity’s ownership interests. This definition is identical to the definition of a beneficial owner in FinCEN’s Beneficial Ownership Information Reporting Rule. 31 CFR 1010.380.

Beneficial owners of transferee trusts: An individual is a beneficial owner of an interest transferred to a trust if that individual is (1) a trustee of the trust or an individual with authority to dispose of transferee trust assets; (2) a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; (3) is a grantor or settlor of a revocable trust; or (4) is the beneficial owner of an entity or trust that holds one of the aforementioned positions in the trust.

Reasonable Reliance on Information Provided by Others

When determining whether a transfer is reportable and when collecting required information, reporting persons may rely on information provided by any other person, but only if the reporting person does not have knowledge of facts that would reasonably call into question the reliability of the information.

Regarding the beneficial ownership information of transferee entities or transferee trusts, this reasonable reliance standard is slightly more limited. In these situations, the reasonable reliance standard applies only to information provided by the transferee or the transferee’s representative and only if the person providing the information certifies the accuracy of the information in writing to the best of their knowledge.

Filing Real Estate Reports and Keeping Records

A report must be filed by the later date of either: (1) the final day of the month following the month in which the reportable transfer occurred; or (2) 30 calendar days after the date of closing.

The reporting person is not required to retain a copy of the report. However, they must keep for five years a copy of any certification, signed by the transferee or a transferee’s representative, certifying the transferee’s beneficial ownership information, as well as a copy of any designation agreement signed. Other parties to the designation agreement similarly need to keep copies of the agreement.

Next Steps

The Real Estate Rule takes effect on December 1, 2025. FinCEN claims it will publish a notice regarding the form of the report later.