FinCEN (the Financial Crimes Enforcement Network) is a subdivision of the U. S. Department of the Treasury and is tasked with combating money laundering and other financial crimes.

Recently, FinCEN made headlines related to their proposed rule that would have instituted stringent beneficial ownership reporting requirements for many U.S. companies and their attorneys, accountants, and advisors. However, following strenuous objections to the proposed rule, FinCEN ultimately exempted U.S. companies from the reporting requirements.

FinCEN is now back with a new proposed final rule that will have a significant impact on reporting requirements for title companies and attorneys involved in assisting with residential real estate transactions.

This article summarizes some of the key points of the new rule, which is titled “Anti-Money Laundering Regulations for Residential Real Estate Transfers” (AMLR) and codified at 89 Fed. Reg. 70258 (Final Rule) published on Aug. 29, 2024, by the U.S. Department of the Treasury.

What is the New Anti-Money Laundering Rule?

The AMLR is a new rule promulgated by FinCEN that is scheduled to take effect Dec. 1, 2025. At a high level, this rule requires that residential property transferred to a legal entity or trust, without financing involved, be reported to FinCEN within a certain timeframe.

What Qualifies as a Residential Transfer of Real Property?

The ALMR takes an expansive view of a residential transfer of real property. It specifically includes each of the following:

• one to four family residences;
• vacant land intended for construction of future one to four family residences;
• a unit within a structure designed for one to four family residences; and
• a share in a cooperative housing corporation.

What Qualifies as a Legal Entity or Trust?

The term “Legal Entity” includes any person other than a transferee trust or individual (corporations, partnerships, estates, associations, limited liability companies).

However, there are several exceptions to these reporting requirements. The following is a nonexhaustive list of the more common exceptions:

• public companies;
• government entities;
• banks/credit unions;
• money services businesses;
• insurance companies (not including title insurance companies); and
• broker-dealers and financial market utilities.

The term “Trust” refers to a legal arrangement where a grantor places assets under a trustee’s control for the benefit of others, or for a specific purpose. A trust is considered a transferee trust even if the property is titled in the name of the trustee instead of the trust itself.

Exceptions to this definition include:

• estate planning trusts (transfers for no consideration by a grantor and/or the grantor’s spouse, to a trust of which that individual and/or their spouse are the grantors),
• public companies acting as trustees,
• statutory trusts, and
• subsidiaries of exempted trusts.

What Qualifies as a Non-Financed Transfer?

A “Non-Financed Transfer” is any transfer that involves:

• a loan or line of credit from a financial institution that is not subject to the Bank Secrecy Act, the AMLR, or Suspicious Activity Reporting requirements; or
• any transfer that does not involve a loan or line of credit secured by the property. This also includes any residential real estate transactions funded by non-bank private lenders where the transferee is a legal entity or a trust.
  

What are the New Reporting Requirements?

Reports can be submitted through the FinCEN’s website. The report must include information about the reporting person, transferee, beneficial owners of the transferee trust/entity, any individual signing on behalf of the transferee, seller, residential real property, as well as the total consideration paid/payment details.

The filing party must file the report by the final day of the month following the month in which the closing date occurred, or 30 days following the closing date.

Who is Responsible for Reporting?

The following persons, in order, are responsible for filing the report required by the AMLR for a covered transaction:

• settlement agent;
• closing statement preparer;
• deed submitted;
• title insurance underwriter;
• person disbursing the greatest amount of funds;
• evaluator of status of title; and
• deed/transfer document preparer.

This hierarchy can be altered using a “Designation Agreement,” although the use of such agreements is outside the scope of this article.

What are the Exceptions to the New AMLR?

The following types of transfers are specifically exempted from compliance with the AMLR’s requirements:

• transfers of easements;
• transfers due to death;
• transfers due to divorce;
• transfers into a bankruptcy estate;
• transfers supervised by a court in the U.S.;
• transfers made with no consideration to a qualifying trust;
• transfers to a 1031 intermediary; and
• transfers for which there is no reporting person involved in the transaction.

What are the New Penalties for Noncompliance with the New AMLR?

Violation of the AMLR comes with significant criminal and civil penalties. Each violation of the AMLR carries the possibility of civil penalties ranging from $1,394 to $108,489 per violation (each day the violation continues constitutes a separate violation).

Meanwhile, willful noncompliance can also carry criminal penalties of up to $250,000.00 and up to five years in prison.

Conclusion

The AMLR contains several new requirements that are still scheduled to take effect Dec. 1, 2025. Violating these requirements can carry significant penalties. Attorneys who practice real estate law need to familiarize themselves with these requirements and be prepared to comply with them. Attorneys must be particularly cautious in any residential real estate transaction involving a transferee/grantee that is an entity or trust, where no lender is involved.

This article was originally published on the State Bar of Wisconsin’s Solo/Small Firm & General Practice Blog of the Solo/Small Firm & General Practice Section. Visit the State Bar sections or the Solo/Small Firm & General Practice Section web pages to learn more about the benefits of section membership.