If you have been hearing about a new federal rule impacting real estate transactions, you are not alone. When news of the FinCEN Real Estate Reporting Rule began circulating, agents generally had one of two reactions. Some assumed it would not affect their deals. Others believed it sounded overly complicated. The reality falls somewhere in between.
For most transactions, this rule will not meaningfully change the closing process. However, for certain cash purchases involving entities or trusts, there is now an additional compliance step that must be handled properly.
By Michael Infanti, Real Estate Attorney and CEO of Preferred Settlement Services
What is the FinCEN Rule?
The Financial Crimes Enforcement Network, a bureau of the
, has implemented a rule requiring reporting for certain residential real estate transactions. The purpose is to increase transparency and prevent the use of anonymous shell entities to launder illicit funds through U.S. real estate.
The rule requires disclosure of beneficial ownership information in specific non-financed residential purchases. It is not a change to contract law, an inspection requirement, or a tax. It is a federal reporting obligation.
When Does the Rule Apply?
The rule generally applies when residential real property is being purchased without an instituational lender and the buyer is a legal entity or trust rather than an individual purchasing in their personal name.
If a traditional bank loan is involved, the rule typically does not apply because financial institutions already conduct anti-money laundering compliance and reporting. In short, financed transactions are usually unaffected. Cash purchases by entities or trusts require closer review.
What Must be Reported?
When applicable, certain information must be reported to FinCEN, including the identity of individuals who ultimately own or control the purchasing entity, beneficial ownership details, and specific transaction information. The report is submitted through a secure federal filing system. This information is not recorded in public land records. It is reported directly to the federal government.
Who is Responsible for Filing?
The rule designates a reporting person, typically the settlement agent or title company handling the closing. Realtors are generally not responsible for filing the report. However, agents should expect that in applicable transactions, buyers may be asked to provide additional identification or documentation so the requirement can be satisfied. When identified early, the process is typically straightforward.
Will this Delay Closings?
When addressed proactively, it should not. If overlooked until the last minute, it could. As with most compliance matters, early identification allows reporting to occur alongside the normal closing workflow.
What Should Realtors Do?
In most cases, very little. It is helpful to identify early whether the buyer is purchasing through an LLC, corporation, or trust, flag cash transactions, involve the title company early when an entity is involved, and prepare buyers for possible documentation requests.
Compliance in Context
The FinCEN reporting rule is a compliance requirement that becomes simply another step in the closing process when handled properly. Most transactions will proceed as they always have. For those that fall within the rule, awareness, communication, and coordination with your title partner are key. When managed correctly, the process should remain smooth and predictable.