The FinCEN Residential Rule

Topics Covered

FinCEN BOI Regulation under the CTA
The Residential Rule in Real Estate Transactions
Exemptions to the Residential Rule
CTA Enforcement and Penalties

Reporting of LLC Beneficial Ownership Suspended

In enforcing the Corporate Transparency Act (31 U.S.C. Sec. 5336), FinCEN previously attempted to impose rules requiring the disclosure of beneficial ownership information (BOI rules) upon everyone who forms an LLC, corporation, or other registered entity in any U.S. state. Public and political reaction was swift and defiant. BOI reporting requirements have (for now) been suspended as to entities formed in the U.S., although they still apply to foreign entities. In March of 2025, FinCEN issued “an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. In that interim final rule, FinCEN . . . exempts entities previously known as domestic reporting companies from BOI reporting requirements . . . . Foreign entities [must still] report their BOI to FinCEN.”

FinCEN’s Residential Rule in Cash Transactions

Although BOI reporting has been suspended for domestic corporations and LLCs, FinCEN’s Residential Rule greatly expands the agency’s regulatory and data-collection efforts in the area of residential real estate. The Final Rule to Increase Transparency in Residential Real Estate Transfers (the Residential Rule) focuses on residential cash transactions involving entities and trusts. FinCEN states:

Illicit actors often favor non-financed transfers (including “all-cash” sales) of residential real estate to avoid scrutiny [and] also often hold residential real estate in the name of a legal entity or trust, in an effort to obscure their identities and their ownership interests in the property.

Transfers that are both non-financed [i.e., cash] and involve a transferee that is a legal entity or trust are of higher risk for money laundering. . . . The reporting of these transfers [by means of the Residential Rule] will help curtail the anonymous laundering of illicit proceeds through the purchase of residential real property which threatens U.S. economic and national security.

In the context of the Residential Rule, SARs are called real estate reports.

Scope of the Residential Rule

Terminology is important under the Residential Rule. Reportable transfers must be reported to FinCEN by a reporting person when they meet the following criteria:

(1) the property is residential real property including unimproved land;

(2) the transfer is non-financed (i.e., consideration is paid in cash);

(3) the property is transferred to a legal entity (such as an LLC) or investor land trust; and

(4) an exemption does not apply.

Transfers meeting the rule’s requirements must be reported regardless of purchase price or the value of the property. Cash and gift transfers are therefore clearly subject to the rule. However, transfers made directly to an individual are not covered.

Transfers that are financed solely by a non-institutional lender that does not otherwise have an obligation to maintain a BSA/AML program and file SARs (this would include private hard-money lenders as well as individual sellers engaging in owner finance) are included in the definition of non-financed transfers and are subject to reporting requirements unless an exemption applies.

Deeds into LLCs

Since a deed transfer from an individual investor to an LLC typically does not involve a new bank mortgage, this makes it non-financed under the rule and thus reportable. Also, LLCs are specifically defined as transferee entities by FinCEN.

Because LLCs are often used to shield the identity of the true beneficial owner, FinCEN requires a report even if the owner of the LLC is the same person who previously held the property in their own name.

While there is a specific exception for “no consideration” residential transfers to a living trust where the transferor is the trustor, there is no matching exception for transfers of residential property to an LLC. This is true even if the transfer is made for “$10 and other valuable consideration” as is typically the case in Texas.

Exemptions to the Residential Rule

Exemptions are provided for certain transfers that FinCEN considers to be lower in corruption risk, including:

(1) transfer of an easement;

(2) 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;

(3) transfer incident to divorce or dissolution of a marriage or civil union;

(4) transfer to a bankruptcy estate;

(5) transfer supervised by a court in the United States;

(6) 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, are the settlor or grantor (the typical homestead living trust);

(7) transfer to a qualified intermediary for purposes of a like-kind exchange under Section 1031 of the Internal Revenue Code; or

(8) transfer for which there is no reporting person.

Who has the obligation to report?

A reporting person has an obligation to make a report concerning a reportable transfer. A signing individual refers to the person who signs closing documents on behalf of the transferee.

The priority of persons obligated to file a report (the reporting cascade) consists of seven tiers:

Tier 1: The title company or settlement agent listed on the closing statement;

Tier 2: the person who prepares the closing or settlement statement;

Tier 3: the person who records the deed with the county clerk;

Tier 4: the title insurance underwriter;

Tier 5: the person who disburses the greatest amount of escrow funds at settlement;

Tier 6: the person who provides a title evaluation; and lastly

Tier 7: the person who prepares the deed or other legal instrument of transfer.

The absence of the grantor or grantee on this list is a conspicuous omission.

An attorney who merely prepares the deed falls into the seventh and final tier. If any other professional (e.g., a title company) performs a function from Tiers 1 through 6, that person is the reporting person and is responsible for filing the report, not the drafting attorney. The drafting attorney becomes the reporting person only if none of the functions in Tiers 1 through 6 are performed by anyone else.

FinCEN’s ultimate goal is to deputize all transactional gatekeepers in the real estate industry—title insurance companies, real estate agents and brokers, law firms, settlement and closing agents, and others who collect information and maintain records regarding non-financed (cash) purchases of real estate.

What information must be reported?

Personal identifying information on both transferor and transferee (sellers and buyers) must be reported along with a description of the property and the consideration paid.

Required information on the transferee includes the name of the legal entity or trust receiving ownership of the property; the EIN or social security number; the beneficial owners (i.e., persons owning a 25% or greater interest or exercising substantial control) of the transferee entity or trust including their residential addresses; and the name of the authorized person who executes documents on the behalf of the transferee (the signing individual).

A reporting person may exercise reasonable reliance on information provided by others (i.e., the beneficial owners) so long as there is no reason to believe that it is unreliable. Reports must be filed by the later of either the final day of the month following the closing or 30 days after the date of closing.

When is the FinCEN report due?

A Real Estate Report must be filed with FinCEN by the reporting person (usually the title company but this can include an attorney who drafts the deed). The report must be filed by the last day of the month following the month in which the date of closing occurred, or 30 calendar days after the date of closing, whichever is later. This generally means that the reporting person has between 30 and 60 days to complete the filing.

Impact of Residential Rule on Trusts

FinCEN’s expansion into the realm of trusts is significant. A trust agreement is a private document that need not be filed or recorded anywhere. Trusts are not registered entities created by paying a filing fee to the state. As a result, trusts, including those that hold real estate, have traditionally enjoyed a high degree of confidentiality.

However, a trust must now be reported as a beneficial owner of an entity if it exercises substantial control or own 25% or more of a registered entity such as an LLC. This is further explained in the section below that addresses FinCEN reporting in entity formation.

Civil and Criminal Penalties

While BOI FinCEN reporting requirements have been retracted, the Corporate Transparency Act remains in effect and must be considered. Violations of the CTA fall into two general categories: first, reporting violations, including failure to report and false or fraudulent reporting; and second, knowing and unauthorized use or release of beneficial ownership information. 31 CFR Sec. 1010.380(g).

Reporting violations (including false reports and failure to file or update FinCEN reports) can result in a fine of $500 per day up to $10,000 and/or up to two years in federal prison. 31 U.S.C. Sec. 5336(h)(2) and (3)(A).

Violations relating to knowing misuse or unauthorized release of beneficial ownership information are harsher and can result in the same daily fine up to $250,000 and/or a prison term of up to ten years. 31 U.S.C. Sec. 5336(h)(2) and (3)(B).

Asset Forfeiture

FinCEN wants to take civil forfeiture to the next level as it continues to try to expand its power. Violations of the Corporate Transparency Act will also result in the confiscation of cash, vehicles, and properties from potential defendants and suspects, even those who not prosecuted. Federal law (18 U.S.C. Section 981) allows the U.S. Treasury to seize any property, real or personal, involved in a transaction involving money-laundering. In its 2021 NPRM, FinCEN literally boasts that previous forfeitures have yielded “luxury properties in New York City, Los Angeles, Beverly Hills, and London, mostly titled in the name of shell companies, as well as paintings by Van Gogh, Money, Picasso, a yacht, several items of extravagant jewelry, and numerous other items of personal property.” An Orwellian theme is apparent: in your hands, these things are extravagant; but by transferring them to the government, the result is justice.

Civil forfeiture without due process resembles the confiscatory practices of third-world authoritarians and clearly violates the 14th Amendment. To their shame, American courts continue to look away.