Beginning March 1, 2026, the Residential Real Estate Rule requires applicable professionals involved in real estate closings and settlements to submit reports to FinCEN regarding certain non-financed transfers of residential real property to legal entities or trusts. This reporting requirement is designed to increase transparency in the U.S. residential real estate sector and to combat and deter money laundering. As a result, several types of relatively routine real estate transfers must be now reported to FinCEN by a party involved with facilitating the transfer.
How is Residential Real Property Defined?
Under the Residential Real Estate Rule, residential real property means:
- Real property located in the United States containing a structure designed principally for occupancy by one to four families;
- Land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families;
- A unit designed principally for occupancy by one to four families within a structure on land located in the United States; or
- Shares in a cooperative housing corporation for which the underlying property is located in the United States.
Residential real property therefore includes 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 types of properties are considered residential real property even if there is also a commercial element. Certain types of land on which a residence is not yet built are also included if the transferee intends to build any structure designed principally for occupancy by one to four families on the property.
What is a Non-Financed Transfer?
A non-financed transfer of residential real property is a transfer that does not involve an extension of credit to the transferees that is both: (1) secured by the transferred property, and (2) issued by a financial institution subject to anti-money laundering (AML) program requirements and Suspicious Activity Report (SAR) reporting obligations.
Transfers that are financed by financial institutions that have an obligation to maintain an AML program and are required to file SARs are not subject to additional reporting under the Residential Real Estate Rule. However, transactions involving cash purchases or financing from private parties (for example, sellers, family members or hard money lenders) will require reporting if the property is residential and the transferee is a reportable entity or non-exempt trust.
What is a Reportable Transferee Entity?
A transferee entity is defined as 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. Certain regulated entities are excepted under this requirement.
Details about the beneficial owner(s) of the transferee entity must be reported to FinCEN. A beneficial owner of a transferee entity is an individual who, on the date of closing, either directly or indirectly:
- Exercises substantial control over the transferee entity, or
- Owns or controls at least 25% of the transferee entity’s ownership interests.
What is a Reportable Transferee Trust?
A transferee trust is any legal arrangement created when a person – generally known as 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. A trust is considered a “transferee trust” regardless of whether the residential real property being transferred is titled in the name of the trust itself or in the name of the trustee.
Not all transfers of residential real property to transferee trusts are reportable. For example, a transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, that individual’s spouse, or both, are the settlors or grantors, does not have to be reported. Notably, these types of transfers and transferee trusts are the most common type of estate planning vehicle for clients who utilize trusts for probate avoidance purposes.
Details about the beneficial owner(s) of the transferee trust must be reported to FinCEN. The beneficial owners of a transferee trust are all individuals who, at the time of the transfer of residential real property to the trust, fall into any of the following categories:
- A trustee of the transferee trust;
- An individual other than a trustee who has authority to dispose of transferee trust assets, such as may be the case with a trust protector;
- 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;
- A grantor or settlor who has the right to revoke the transferee trust or otherwise withdraw the assets of the transferee trust; or
- A beneficial owner of a legal entity or trust that holds one of the positions described in the above four categories, taking into account the exemptions that apply to transferee entities and transferee trusts.
When is a Transfer Reportable?
A property transfer must be reported to FinCEN when all of the following conditions are met:
- Residential real property is transferred; and
- The transfer is non-financed; and
- The property is transferred to a transferee entity or transferee trust; and
- No exception applies.
When is a Transfer Not Reportable?
The following transfers of residential real property do not need to be reported:
- A transfer that is a grant, transfer, or revocation of an easement.
- A transfer resulting from the death of an individual, whether pursuant to the terms of a will, the terms of a trust (including testamentary trusts), the operation of law (such as transfers resulting from intestate succession, surviving joint owners, and transfer-on-death deeds), or by contractual provision (such as transfers resulting from beneficiary designations).
- A transfer incident to divorce or dissolution of a marriage or civil union (such as transfers required by a divorce settlement agreement).
- A transfer made to a bankruptcy estate.
- A transfer supervised by a court in the United States.
- A transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, that individual’s spouse, or both, are the settlors or grantors.
- A transfer to a qualified intermediary for the purposes of a like-kind exchange for purposes of Section 1031 of the Internal Revenue Code; or
- A transfer for which there is no reporting person.
What Information About Beneficial Owners Must be Collected and Reported?
For each beneficial owner, the responsible reporting person must collect and report the following:
- The beneficial owner’s full legal name;
- The beneficial owner’s date of birth;
- The beneficial owner’s complete current residential street address;
- The beneficial owner’s country or countries of citizenship;
- A unique identifying number (such as Social Security Number or Tax Identification Number); and
- For beneficial owners of trusts, the category of beneficial owner they are (trustee, beneficiary, etc.).
The obligated reporting person may collect beneficial ownership information directly from a transferee or a representative of the transferee, so long as the person the information is collected from certifies in writing that the information they have provided is correct to the best of their knowledge. If beneficial ownership information is certified as described above, the reporting person may reasonably rely on the information so long as the reporting person does not have knowledge of facts that would reasonably call its reliability into question.
The reporting person must maintain a copy of the certification by the transferee or transferee’s representative as to the identities of the beneficial owner(s) of the transferee for a period of five years.
Signing Individuals
Each individual who signed documents on behalf of a transferee entity or transferee trust as part of the reportable transfer is considered to be a signing individual.
For each signing individual, the reporting person must collect and report the following:
- The signing individual’s full legal name;
- The signing individual’s date of birth;
- The signing individual’s complete current residential street address;
- A unique identifying number;
- Description of the capacity in which the individual is authorized to act as the signing individual; and
- If the signing individual is acting in that capacity as an employee, agent, or partner, the name of the individual’s employer, principal, or partnership.
Real Estate Reports – Timing and Details
The person required to file the Real Estate Report with FinCEN is known as a reporting person. The reporting person must collect and report several different types of information about the transaction, the parties involved, and the individuals who benefit from or act on behalf of the involved entities or trusts.
A Real Estate 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. Reporting persons will therefore generally have about 30 to 60 days to file the report.
On the Real Estate Report, the reporting person must submit information necessary to identify:
- The reporting person;
- The residential real property being transferred (street address and legal description);
- The transferee entity or transferee trust;
- The beneficial owners of the transferee entity or transferee trust;
- Certain individuals representing the transferee entity or transferee trust in the transfer;
- If the transferee is a transferee trust, any trustee that is an entity; and
- The transferor.
The reporting person 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, including:
- The amount of the payment;
- The method by which the payment was made;
- If the payment was paid from an account held at a financial institution, the name of the financial institution and the account number; and
- The name of the payor on any wire, check, or other type of payment if the payor is not the transferee entity or transferee trust.
How is the Reporting Person Determined?
The reporting person is determined by priority in the reporting cascade described below. The reporting cascade is a list of seven different functions that a real estate professional may perform in a reportable transfer of residential real property.
If a person is performing the first function described in the cascade, then that person would be the reporting person. If no person performing the first function described in the cascade is involved in the transfer, then the reporting person would be the person that performs the second described function, if any, and so on down the cascade.
The reporting cascade is as follows:
- The person listed as the closing or settlement agent on the closing or settlement statement;
- If no person described above is involved, the person that prepares the closing or settlement statement for the transfer;
- If no person described above is involved, the person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property;
- If no person described above is involved, 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;
- If no person described above is involved, 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;
- If no person described above is involved, the person that provides an evaluation of the status of the title; or
- If no person described above is involved, 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 closing of an applicable transaction is handled by a closing or settlement agent such as a title company, then the closing or settlement agent will likely be the obligated reporting person. For transactions that are not handled by a closing or settlement agent – such as transfers of real estate to non-exempt trusts or entities for estate planning or asset protection purposes – then the attorney or law firm that prepares and records the deed will likely be the obligated reporting person. In some cases, reporting responsibilities may be designated to another party who performs a lower priority function in the reporting cascade through a written designation agreement.
Conclusion
The Residential Real Estate Rule imposes significant new reporting obligations in connection with certain transfers of residential real estate to legal entities or trusts when institutional financing is not part of the transaction. These new reporting obligations will be time consuming for reporting persons, which in turn will lead to higher costs for consumers. Responsible reporting persons who fail to collect and file the necessary transaction details with FinCEN can face civil and criminal penalties.
For traditional purchase and sale transactions, where the trust or entity buyer is paying cash or receiving private financing, the parties should coordinate early with the closing or settlement agent to ensure that all necessary information is provided in connection with closing. For transfers to entities or non-exempt trusts for estate planning or asset protection purposes, the attorney or law firm facilitating the transfer will need to collect and file relevant information about the parties and reportable transactions. For assistance with Residential Real Estate Rule filing obligations and reporting, contact attorney Michael Smeenk
