Beginning March 1, new reporting requirements issued by the FinCEN (Financial Crimes Enforcement Network) will impact how certain real estate transactions are processed and documented. These changes are designed to increase transparency, strengthen compliance standards, and reduce the risk of fraud in real estate transactions.
For buyers, sellers, lenders, and especially real estate professionals, understanding what is changing — and how it may affect your closing — is critical.
Why These Changes Matter
Real estate transactions are increasingly targeted for fraud, particularly wire fraud and seller impersonation schemes. Enhanced reporting requirements are intended to:
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Protect buyers and sellers
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Protect escrowed funds
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Reduce liability exposure
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Improve compliance with federal anti-money laundering initiatives
While the additional documentation may feel burdensome, it ultimately strengthens the integrity of the transaction.
What Transfers Must Be Reported?
All non-financed/cash transfers of residential real estate where the transferee is a legal entity or trust.
Non-Financed refers to any transaction that does not involve an extension of credit that is secured by the subject property and extended by a financial institution that is subject to an Anti-Money Laundering (AML) program and Suspicious Activity Report (SAR) obligations.
Residential real estate includes:
- One-to-Four Family Residences
- Vacant land intended for future one-to-four family development
- Units in buildings designed for one-to-four family occupancy
- Shares in a cooperative housing corporation (co-ops)
Reporting does not apply to residential real estate being transferred to a non-entity individual or individuals.
Who Must Report?
One of the following in this “reporting cascade” must report. This is in order of priority of responsibility. The first role that is occupied in this list is required to report.
This means, if in the context of a transaction, someone does not perform roles 1-3, #4 – the person underwriting an owners’ title – is required to report, and so on.
- The person listed as the closing or settlement agent on the closing or settlement statement;
- The person that prepares the closing or settlement statement;
- The person that files the deed or other instrument that transfers ownership of the property;
- The person that underwrites an owners’ title insurance policy for the transferee;
- The person disbursing the greatest amount of funds in connection with the transfer;
- The person that provides an evaluation of the status of title; or
- The person that prepares the deed or any other legal instrument that transfers ownership of the property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.
Reporting must happen by the last day of the month following “closing” – or 30 calendar days after closing – whichever is later.
If the prior vesting deed in the chain of title should have had a report filed but one was not, settlement agents only need to worry about the transaction in front of them and not prior transaction.
There is no risk or penalty for reporting a transaction when there was no requirement to do so.
What Must Be Reported?
We have completed two simple forms to help collect all information that must be reported. They can be found here. E-Signing Buyer and Seller Collection forms is permissible.
In summary:
- The reporting person’s identifying information;
- The legal entity or trust receiving ownership of the property (transferee entity or trust);
- The beneficial owners of the transferee entity or trust;
- Information of certain individuals signing documents on behalf of the transferee entity or trust during the reportable transfer;
- Information about the transferor
- The property address being transferred
- Total consideration and certain information about any payments made
How Will a Reporting Party Report?
Using the BSA E-Filing System using “Real Estate Report”.
What are the Consequences of Not Reporting?
A negligent violation could result in a fee of of more than $1300 per violation, up to more than $108,000 for a pattern of negligent activity
Willful violations can result in a $250,000 criminal fine or 5 years imprisonment – or both.
If there is a pattern of non-compliance, a reporting person should consult with their attorney.
Every settlement agent will have to create their own workflow to determine which transactions are potentially reportable in order to determine whether a Certification Form needs to be sent out to determine whether an exemption applies.
What if a Party is Unwilling to Provide Information?
It is best to ensure that all parties are aware of and willing to provide the reporting requirement information before extending or accepting an offer. Filing an incomplete or late report can subject the “reporting person” to severe consequences, including the aforementioned fines and prison time.
Do Transfers with No Consideration (Including Gifts) Have to Be Reported?
Yes, if no other exemption applies. If buying as an individual and then transferring to an LLC or Trust, the transaction may still reportable. Be sure to consult with an attorney to structure your entity or trust to ensure you are complying with the FinCEN regulations.
Final Thoughts
There will be some growing pains and changes as settlement agents create and implement their own procedures to ensure compliance. That said, the March 1 reporting updates are part of a broader push toward increased transparency and fraud prevention in real estate transactions. While they may add a layer of administrative work, they are designed to protect everyone involved.
As an agent, you can prevent delayed closings by being proactive with your entity Buyers well before an Offer is accepted.
What we recommend:
- Have your Buyers complete this information form to gather the details that will be needed to comply with FinCEN. It is best for the Buyers to consult with their attorney or CPA to ensure the data they are providing is accurate.
- Remember – short cuts don’t exist. If a Buyer is thinking of purchasing in their personal names and substituting a trust or business entity as Buyer after signing the offer later, they should rethink this. Buyers can complete closing as individuals and then transfer to an entity or trust and complete the FinCEN requirements at that time. Be sure to consult with an attorney to structure your entity or trust to ensure you are complying with the FinCEN regulations.
- For Listing Agents, take a moment to share the FinCEN reporting requirements with entity Buyers before accepting an Offer to ensure they have the information they will need. Unaware, unsophisticated or uncooperative Buyers will delay closing. It may also be helpful to include contingency language to allow a Seller to cancel if an entity Buyer does not provide the FinCEN information shortly after making their offer.
How We Can Help:
- We can help entity Buyers compile the information needed for the FinCEN filing, and, if needed update entity governing documents and/or trust resolutions to ensure compliance
- We can draft and advise as to contingency language in Purchase Agreements related to this new requirement
- We can advise Sellers as to whether or not the Buyer entity is complying with the FinCEN requirements
- We can assist Buyers in transferring property they may purchase in their individual names with establishing an entity or trust, conveying the property into the new entity or trust, and completing the FinCEN requirements.
If you have any questions about new requirements, or would like assistance on any of the above, contact us today to schedule a consultation and ensure your compliance with the new requirements.
What Is FinCEN?
FinCEN (Financial Crimes Enforcement Network) is a bureau of the U.S. Department of the Treasury that works to prevent money laundering, terrorist financing, and other financial crimes.
