Beginning on March 1, 2026, closing attorneys and other parties involved in the transfer of residential real estate will have new obligations to report critical information to the federal government. FinCEN Real Estate Report Rule 31 CFR 1031.320 establishes new reporting requirements that impact many non-financed transfers of residential real property to an entity transferee.
Background
Most transfers or purchases of residential real estate involve financing through an institutional lender. Those lenders are typically subject to rigorous reporting requirements under the Banking Secrecy Act, which aims at improving transparency and providing federal agencies with critical information to be used in various tax, regulatory, intelligence, and law enforcement activities. This level of regulatory transparency has made it more difficult for bad actors to use financed transactions in connection with illicit activities. The relative anonymity afforded by non-financed transfers to entity grantees has made this sort of transaction particularly vulnerable to abuse by bad actors. The new rule was enacted by the Financial Crimes Enforcement Network to combat that abuse and to extend the same level of transparency to non-financed transactions.
Reportable Transfers
To qualify as a reportable transfer, the transaction must: (1) involve a transfer of residential real estate; (2) involve an entity transferee/buyer; and (3) not involve an institutional lender or financing.
For reporting purposes, “residential real estate” means any property which has a residential purpose. This includes single-family homes, townhomes, timeshares, condos, shares in a co-op, apartment buildings with 1-4 units, and vacant land which the transferee intends to use for the construction of residential units. The rule applies to any entity or trust transferee which is not subject to an exemption, and includes any transfer which does not involve an institutional lender (including transfers without consideration). The rule does not apply to any transaction where: (1) the buyer/grantee is an individual (or an exempt trust); (2) the purchase is financed by an institutional lender; or (3) the property has no current or intended residential use.
Exemptions
Certain otherwise reportable transfers are exempt from the requirement to report, based on either the nature of the transfer itself or the type of entity that is listed as the transferee. The exemptions to the reporting requirement apply only to certain specific transaction types; or to transfers to entities which are already subject to separate regulatory regimes such as banks and insurance companies, governmental agencies, and certain trusts. If your matter or transaction may trigger the new reporting rule, your attorney may ask you to provide more information to determine whether an exemption may apply. Local government clients should be aware that the governmental exception applies only in cases where the governmental body is the grantee. There is no exemption for a reportable transfer by a governmental body.
Reporting Parties and Required Information
In an any matter involving a transfer of real property, the attorney involved will need to analyze whether the transaction is subject to the reporting requirement. If the attorney determines that the transfer is reportable and that the firm is responsible for reporting it, the attorney will need to gather the name, address, and SSN for each individual who exercised substantial control over the transferee entity (including managers, members, directors, and officers) or any person who owns at least 25% of the transferee’s ownership interests. If your matter involves a reportable transaction, our firm is required by law to collect and report that information and cannot close the transaction without it.
Penalties for violations of the rule range from $1,000.00 per violation (with an additional penalty of $100,000 for continued violations) in civil penalties for negligent failure to report, to up to 5 years in prison and $250,000 in fines for willful violations.
Conclusion
The adoption of Real Estate Report Rule 31 CFR 1031.320 creates new reporting obligations for attorneys which may impact the information clients are required to provide in connection with certain real estate matters. Clients will need to be prepared to provide that information to their attorneys to ensure compliance with federal law.
The full text of the rule is linked here: eCFR :: 31 CFR 1031.320 — Reports of residential real property transfers.