Get Ready for FinCEN's Residential Real Estate Rule Report Form

Key Takeaways

• As set forth in alerts and advisories from the Financial Crimes Enforcement Network (FinCEN), illicit actors intent on laundering funds through residential real property often use legal entities and trusts to disguise their identities and make the proceeds of crime more difficult to identify.
• Nonfinanced residential real estate transactions involving transferees that are legal entities or trusts must be reported to FinCEN effective March 1, 2026.
• Real estate professionals involved in the closing or settlement of such transactions will be required to file the FinCEN report based on a reporting cascade developed by FinCEN or by designation.
• The FinCEN report contains 111 fields and will require information from transferees, transferors, and financial institutions.
• Willful or negligent noncompliance could result in both criminal and civil penalties.
• Reporting real estate professionals should ensure that they have developed appropriate policies and procedures by March 1, 2026, including contractual safeguards, report filing procedures, secure recordkeeping obligations, and employee training to equip personnel to spot red flags to prevent the filing of incorrect or inaccurate reports.

FinCEN’s residential real estate rule will become effective on March 1, 2026, and requires certain professionals involved in real estate closing and settlements to submit reports to FinCEN regarding certain nonfinanced transfers of residential real property to legal entities or trusts. Most real estate professionals are not subject to FinCEN’s anti-money laundering (AML) requirements, so this new rule represents a major escalation in legal responsibility—and potential related liability—for those who may now be required to file a report form with FinCEN. To assist these professionals in complying with this new reporting requirement, FinCEN has established a reference web page. 

Key Concepts

Under the rule, a reportable transfer is a nonfinanced transfer to a transferee entity or transferee trust of an ownership interest in residential real property. Some of the key concepts in the rule are as follows.

Transfer of Residential Real Property

The rule will capture any transfer, for any amount (including gifts), of an ownership interest in residential real property that is demonstrated through a deed or, for an interest in a cooperative housing corporation, through stock, shares, membership, a certificate, or other contractual agreement evidencing ownership. This definition may also capture certain real estate transfers resulting from certain corporate and other asset acquisition transactions that would result in a deeded or stock/share transfer of residential real property to a transferee entity or trust. The rule identifies several exceptions for transfers resulting from death, divorce, bankruptcy, court supervision, and like-kind exchanges, among others. 

Nonfinanced Transfer

The rule applies to transfers that do 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 AML program requirements and Suspicious Activity Report (SAR) reporting obligations. Transactions funded entirely by cash, funds transfers, or cryptocurrencies without an extension of credit are subject to the rule. Transfers financed by a lender who does not have an obligation to maintain an AML program and a requirement to file SARs are treated under the rule as nonfinanced transfers that must be reported. FinCEN has indicated that if reporting professionals are unsure as to whether the lending institution involved in a transfer is required to both maintain an AML program and file SARs, they should reach out to that lending institution to confirm.

Transferee Entity 

The rule applies to any person other than a transferee trust or an individual. For example, a transferee entity may be a corporation, partnership, estate, association, or limited liability company. However, certain regulated entities such as banks, securities reporting issuers, public utilities, etc. are exempt as set forth in the rule. 

Transferee Trust 

A transferee trust is any legal arrangement created when a grantor or settlor places assets under the control of a trustee for the benefit of one or more beneficiaries or for a specified purpose and includes most trusts and similar foreign legal arrangements. A trust is a transferee trust regardless of whether the residential real property is titled in the name of the trust itself or in the name of the trustee. However, certain types of trusts, such as statutory trusts, securities reporting issuers, etc., are exempted from the definition as set forth in the rule. As long as at least one of the transferees in a given transfer is a transferee entity or transferee trust, the transfer is reportable. However, only identifying information for the reportable transferee(s) is required.

Residential Real Property 

The rule applies to transfers involving single-family houses, townhouses, condominiums, and cooperatives, including condominiums and cooperatives in large buildings containing many such units, as well as entire buildings designed for occupancy by one to four families. These properties are reportable even if there is also a commercial element such as a single-family residence that is located above a commercial enterprise. Land located in the United States upon which the transferee intends to build a structure designed principally for occupancy by one to four families is also included.

Beneficial Owner of a Legal Entity

The rule defines a beneficial owner(s) of a transferee entity as the individual(s) who would be the beneficial owners of the transferee entity on the date of closing if the transferee entity were a reporting company under 31 CFR 1010.380(d) as set forth in FinCEN’s Beneficial Ownership Information Reporting Rule (BOI Rule). Under FinCEN’s BOI Rule, a beneficial owner is defined as an individual who, either directly or indirectly, exercises substantial control over the legal entity or owns or controls at least 25% of the legal entity’s ownership interests.[1] The rule also contains a definition for beneficial owners of legal entities established as a nonprofit or similar entity, regardless of jurisdiction of formation, as those individuals who exercise substantial control over the nonprofit entity.

Beneficial Owner of a Transferee Trust

The beneficial owner of a transferee trust is defined as any individual who, at the time of the transfer of residential real property to the trust: (1) is a trustee; (2) otherwise has authority to dispose of transferee trust assets, such as may be the case with a trust protector; (3) is 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; (4) is a grantor or settlor who has the right to revoke the transferee trust or otherwise withdraw the assets of the transferee trust; (5) is the beneficial owner of a trust that holds one of the positions described in the above four categories, taking into account the exemptions that apply to transferee trusts; or (6) is the beneficial owner of a legal entity that holds one of the positions described in the above four categories, taking into account the exemptions that apply to transferee entities and beneficial ownership of any such legal entity as determined under 31 CFR 1010.380(d) of the BOI Rule utilizing the criteria for beneficial owners of a reporting company.

Reporting Professional

The rule requires a real estate report filing by certain real estate professionals involved in the real estate closing or settlement and establishes a reporting cascade that consists of a list of seven different functions a real estate professional may perform in a reportable transfer. The reporting cascade is as follows:

If none of the functions listed in the cascade are performed for a given reportable transfer of residential real property, then a report is not required to be filed. 

The reporting professional responsible for filing under the cascade may enter into a designation agreement that designates another real estate professional involved in the closing or settlement transaction to file the report form. 

Report Form

FinCEN has published the required real estate report in addition to filing instructions and technical filing guidance on its web page. The report form contains 111 fields to be completed, as appropriate, and must be filed by the last day of the month following the month when the date of closing occurs or 30 calendar days after the date of closing, whichever is later. Reporting professionals will therefore generally have about 30 to 60 days to file.

The real estate report form will require reporting professionals to submit information necessary to identify themselves, the residential real property being transferred, the transferor, the transferee entity or transferee trust, the individuals representing the transferee entity or transferee trust in the transfer, and the beneficial owners of the transferee entity or transferee trust. For example, the reporting professional must collect the following identifying information for any beneficial owner of a transferee entity or a transferee trust: name, date of birth, residential address, citizenship, and taxpayer identification number. The reporting professional must also report the total consideration paid for the property, along with certain information about any payments made by the transferee entity or transferee trust. FinCEN will not accept incomplete report forms, and the rule makes no exception to reporting requirements if a transferee fails to cooperate in providing information about a reportable transfer. 

The rule adopts a reasonable reliance standard, allowing reporting professionals to rely on information obtained from other persons that are parties to the transaction, absent knowledge of facts that would reasonably call into question the reliability of that information. The commentary to the rule also provides that for purposes of reporting beneficial ownership information in particular, a reporting professional may reasonably rely on information obtained from a transferee or the transferee’s representative if the accuracy of the information is certified in writing to the best of the information provider’s own knowledge.[2] These provisions have the practical impact of providing substantial protection to reporting professionals, provided that they are alert to and address red flags as to risk factors present in a particular transaction that may affect the veracity of information they are provided. For organizations employing reporting professionals, it will be important to provide clear policies and training for such professionals to equip them to identify and raise red flags for further review, where appropriate.

Recordkeeping Obligations

FinCEN has indicated that certain records must be retained for a period of five years. Specifically, each party to a designation agreement must retain the records, and reporting professionals must additionally retain copies of the beneficial owner certifications provided to them. FinCEN does not require the retention of the filed report and other information provided to them by the transferees, transferors, and beneficial owners due to concerns relating to personally identifiable information (PII) and other concerns. However, reporting professionals must be able to demonstrate that they reasonably relied on the information and any other certifications (beyond beneficial ownership) that were provided to them by the transferees, transferors, and financial institutions and may decide to retain certain additional information for this purpose, notwithstanding FinCEN’s limited recordkeeping requirements.

Liability Provisions

The commentary to the rule indicates that negligent violations of the rule could result in a civil penalty of up to $1,394 for each violation, and an additional civil money penalty of up to $108,489 for a pattern of negligent activity. Willful violations of the rule could result in a term of imprisonment of not more than five years, a criminal fine of not more than $250,000, or both. Such violations also could result in a civil penalty of not more than the greater of the amount involved in the transaction (not to exceed $278,937) or $69,733. This penalty structure generally applies to any violation of a requirement of the Bank Secrecy Act, and the dollar amounts specified are current as of the publication of the rule.[3]

Steps To Consider To Comply With the Reporting Requirements

Real estate professionals in the reporting cascade should consider developing compliance policies and procedures that address the use and maintenance of designation agreements and address any required recordkeeping that may be applicable, as well as training to assist professionals in identifying and raising red flags as appropriate. Considerations may include:

1. Identification of reportable transfers. Processes to evaluate certain nonfinanced residential real estate transactions at both inception and closing to determine whether a report form is required under the rule, whether exemptions or exceptions are applicable, and, if reportable, who will be the reporting professional.
2. Contractual terms. Provisions in designation agreements, contracts, and agreements for transferee entities, trusts, and transferors to understand and comply with the requirements of the rule and provide the required information promptly upon written request (including required certifications of beneficial ownership information). Absent additional guidance from FinCEN, reporting professionals may want to have the ability to disengage from transactions should the required information not be provided and certified in a timely manner, or should there be reasonable doubts concerning the accuracy or legitimacy of the information provided. Indemnification should also be a consideration.
3. Financial institution AML/SAR confirmation. Processes for confirming with certain financial institutions providing financing for a residential real estate transaction involving a nonexempt transferee entity or trust that the institutions are subject to AML program requirements and SAR reporting obligations and that the transaction is properly treated as a financed transfer exempt from reporting.
4. Information necessary to complete the form. Processes for obtaining the required report form information from both the transferee and the transferor. Such steps may include providing copies of the FinCEN form, a detailed questionnaire, or a checklist with a link to FinCEN’s comprehensive real estate web page, in addition to the development of certification forms including beneficial ownership information to the best of the information provider’s own knowledge. The information collection process will likely need to be completed as quickly as possible to address and resolve any problems or disparities prior to completion of the transaction, or shortly thereafter within the reporting time frame.
5. Staff training. Appropriate staff training and processes to review and adequately assess information obtained—absent facts that would reasonably cast doubt on its reliability—and to identify false or fraudulent information.
6. Information security. Processes to ensure that any PII provided—including taxpayer identification numbers obtained from transferees, transferors, and beneficial owners—is secure, handled appropriately, and disposed of, as appropriate.
7. Recordkeeping. Due to concerns relating to PII, FinCEN only requires reporting persons to maintain for five years the certification forms pertaining to beneficial ownership and for parties to a designation agreement to maintain copies of the agreements. Strong policies, procedures, and processes will enable the reporting professional to sufficiently demonstrate reasonable reliance on the information provided by other parties in completing the required report form. However, it may be challenging for reporting professionals to demonstrate reasonable reliance on the information provided by others without actually recording and maintaining the documentary evidence (including any certifications obtained). In developing these policies and processes, reporting professionals may evaluate the risks and challenges of maintaining the PII and other information obtained against the risks of not being able to document the information that was relied upon in completing and filing the report with FinCEN. 

In addition, real estate professionals should review relevant FinCEN alerts and advisories relating to real estate firms and professionals. Specifically, on August 22, 2017, FinCEN issued an Advisory to Financial Institutions and Real Estate Firms and Professionals, and on March 16, 2022, FinCEN issued an Alert on Real Estate, Luxury Goods, and Other High Value Assets Involving Russian Elites, Oligarchs, and their Family Members. 

Finally, on a risk basis, real estate professionals who desire to avoid the compliance procedures (and attendant financial and operational costs) that would be required to adequately report may consider not engaging in real estate transactions subject to the rule that would require them to file reports absent a designation agreement.

Takeaways

Real estate professionals, including lawyers and law firms, should become familiar with the requirements of the rule and its reporting obligations. Those real estate professionals that expect to file reports with FinCEN should ensure that they have developed appropriate policies and procedures to meet compliance expectations by March 1, 2026. Contractual provisions, report filing, secure recordkeeping obligations, and employee training should be developed as appropriate. Red flags concerning information obtained should be identified and highlighted to prevent the filing of incorrect or inaccurate reports. Reporting professionals must have sufficient time to evaluate the sufficiency of the information provided by transferees, transferors, and beneficial owners and reject transactions that are not in compliance. Expect FinCEN to issue additional guidance and FAQs to address issues and challenges that arise during the implementation of this rule.

Endnotes

[1] FinCEN’s real estate rule cross-references the definition of “beneficial owner” under the BOI Rule. As the commentary explains, the definition of “beneficial owner” excepts nominees, intermediaries, custodians, agents, and minor children (if other required information is reported). See 89 FR 70258, 70274 (Aug. 29, 2024). Moreover, on March 26, 2025, FinCEN amended the BOI Rule in two potentially relevant ways. First, it limited the definition of “reporting company” in 31 CFR 1010.380(c) to cover only those entities formed under the laws of a foreign country that are registered to do business in the United States. Second, FinCEN amended 31 CFR 1010.380(d) to create a new exemption to beneficial ownership reporting that relieves reporting companies from reporting beneficial ownership information for any U.S. persons who are beneficial owners and relieves those U.S. persons from providing such information for any reporting company they own. Given these significant BOI changes, there is some ambiguity about whether the revised definition of a “reporting company” in 31 CFR 1010.380(c) and the new exemptions in 31 CFR 1010.380(d) for reporting of U.S. person beneficial owners affect how the real estate rule operates. In our view, the best reading at present is that they do not.

[2] See 89 FR 70258, 70258 (Aug. 29, 2024).

[3] See 89 FR 70258, 70264 (Aug. 29, 2024).