FinCEN Adopts Reporting Requirement for Non-Financed Residential Real Estate Transfers

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a final rule (the Residential Real Estate Rule) requiring certain persons involved in residential real estate closings and settlements to submit reports and keep records on non-financed transfers of residential real property to certain types of legal entities and trusts. The Residential Real Estate Rule builds on, and expands the scope of, the Geographic Targeting Orders (GTOs) FinCEN has used since 2016 to obtain information concerning transfers of residential real estate it considers to present a high risk for money laundering.

We expect that entities engaged in investing in multifamily residential real estate will not be affected by the Residential Real Estate Rule unless they are also engaged in purchasing one-to-four family residential real estate in non-financed transactions.

Unless an exception applies, the Residential Real Estate Rule will require reporting of information concerning certain transactions (a Reportable Transfer) involving the “non-financed transfer”¹ to a “transferee entity” or “transferee trust”² of an ownership interest in “residential real property.”³

Grants and transfers of easements; a transfer upon death or by operation of law; transfers to a bankruptcy estate; certain transfers without consideration made by an individual, either alone or with the individual’s spouse, to a trust for which the person and/or the person’s spouse is the settlor(s) or grantor(s); and certain other transfers are excluded from the reporting requirement.

When the reporting requirement applies, the report must be filed by a “reporting person,” which is a person “engaged within the United States as a business in the provision of real estate closing and settlement services.” The definition of “reporting person” uses a “cascading” approach in which the highest category of person in the following reporting cascade involved in the transaction is the reporting person obligated to file the report:

(i) The person listed as the closing or settlement agent on the closing or settlement statement for the transfer

(ii) The person that prepares the closing or settlement statement for the transfer

(iii) The person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property

(iv) 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

(v) 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

(vi) The person that provides an evaluation of the status of the title

(vii) 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 a transaction performing any of these functions, then a report will not be required.

The persons described in the definition of “reporting person” may enter into a written “designation agreement” with one or more other persons in the reporting cascade to allocate responsibility for filing the required report. A separate designation agreement is required for each reportable transfer.

When a transaction is a reportable transfer, the reporting person is required to report to FinCEN information about the reporting person, the transferee entity or transferee trust, the transferor, the residential real property being transferred, payments made by or on behalf of a transferee entity or transferee trust in connection with the reportable transfer, and any credit extended by a person that is not a financial institution required to maintain an anti-money laundering (AML) program and to report suspicious activity under the Bank Secrecy Act (BSA). When a report is required, it must be filed by whichever of the following occurs later:

(i) The final day of the month following the month in which the date of closing occurred

(ii) 30 calendar days after the date of closing.

Aside from the requirement to file reports with FinCEN as required by the Residential Real Estate Rule, reporting persons will not be required to maintain an AML program under the BSA.

The Residential Real Estate Rule becomes effective on December 1, 2025.

^[1] A “non-financed transfer” is defined as a transfer that does not involve an extension of credit to all transferees and that is (i) secured by the transferred residential real property; and (ii) extended by a financial institution that has both an obligation to maintain an anti-money laundering (AML) program and an obligation to report suspicious activity under the Bank Secrecy Act (the BSA).
^[2] The definitions of “transferee entity” and “transferee trust” collectively broadly include virtually all legal persons (other than individuals) and trusts. However, the definition of “transferee entity” excludes securities reporting issuers and certain other categories of regulated entities as well as wholly owned or controlled subsidiaries of such exempted entities. Similarly, the definition of “transferee trust” excludes securities reporting issuers, trusts for which the trustee is a securities reporting issuer, and wholly owned subsidiaries of such a trust. Statutory trusts are treated as transferee entities and not trusts.
^[3] For this purpose, “residential real property” is defined as:
(i) Real property located in the United States containing a structure designed principally for occupancy by one to four families;
(ii) Land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families;
(iii) A unit designed principally for occupancy by one to four families within a structure on land located in the United States; or 
(iv) Shares in a cooperative housing corporation for which the underlying property is located in the United States.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.