Are You Prepared for December 2025?
(failure to do so could subject you to Civil and Criminal Penalties)
In an effort to identify money laundering in the US real estate sector, on August 29, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a
120-page final rule that requires certain professionals to report information to FinCEN about non-financed residential real estate transfers nationwide when the grantee on the transfer document is either a legal entity (corp, LLC, partnership) or a trust. The effective date of the rule and reporting requirements is Dec. 1, 2025.
This article is intended to provide an overview of the final rule and the implications for your real estate transfers. Practicing real estate, estate planning, and business attorneys should pay close attention to this rule, which, somewhat surprisingly, applies to unexpected transfers, including a transfer from, say, Bob to Bob’s LLC for no value (and only intended as a means to limit liability). Failure to understand when a FinCEN report is required could subject the lawyer (and potentially the lawyer’s firm) to civil penalties of up to $108,489 for a pattern of negligent activity and criminal penalties of 5 years, a fine of up to $250,000, or both for willful violations.
For a more detailed discussion about the new rule and your role and obligation to assist FinCEN in identifying potential money laundering, please contact the Knight Barry Title Group for its education and training opportunities.
BACKGROUND
In 1970, the US enacted the Bank Secrecy Act (BSA), which authorized the Department of the Treasury to impose reporting and other requirements on financial institutions and other businesses to help detect and prevent money laundering. The purposes of the BSA include requiring financial institutions to keep records and file reports that “are highly useful in criminal, tax, or regulatory investigations or proceedings” or in the conduct of “intelligence or counterintelligence activities, including analysis, to protect against international terrorism.” The Secretary of the Treasury delegated the authority to FinCEN to implement, administer, and enforce compliance with the BSA.
In 2016, FinCEN expanded the reporting requirements beyond financial institutions to title insurance companies, requiring title insurance companies to file reports and maintain records concerning non-financed purchases of residential real estate above a specific price threshold by certain legal entities in select metropolitan areas of the United States. These mandatory reports - called the Residential Real Estate Geographic Targeting Orders (“GTOs”) - have been expanded over time and, as of 2024, are in 13 states plus the District of Columbia. The GTOs have successfully assisted FinCEN in generating new investigative leads, identifying new and related subjects in ongoing cases, and supporting prosecution and asset forfeiture in FinCEN’s efforts to detect and prevent money laundering. FinCEN found that from 2017 to early 2024, approximately 42 percent of non-financed real estate transfers captured by the GTOs were conducted by individuals or legal entities on which a suspicious activity report had been filed.
After internal reviews, FinCEN determined that while effective within the covered geographic areas, the GTOs did not address the illicit finance risks posed by certain real estate transfers nationwide. For instance, a study of money laundering through real estate in several countries by
Global Financial Integrity found that, of Federal money laundering cases involving real estate between 2016 and 2021, nearly 61 percent involved at least one transfer in a county not covered by the GTOs. FinCEN believes that money laundering through real estate is a nationwide problem that jurisdictionally limited reporting requirements are insufficient to address.
DECEMBER 1, 2025 FinCEN REPORTING - WHEN REQUIRED (3 MAIN QUESTIONS)
The final rule, which will be published in Title 31 of the Code of Federal Regulations as §1031.320, defines a reportable transfer, with exceptions, as “... a non-financed transfer to a transferee entity or transferee trust of an ownership interest in residential real property.” Thus, a reportable transfer can be broken down into three main elements:
- Is this residential real property? In the new §1031.320(b)(1), residential real property is generally defined as: (a) improved property designed for occupancy by one to four families, (b) vacant land on which the transferee intends to build a one to four family structure, or (c) shares in a cooperative housing corporation.
- Is the transferee either an entity or a trust? In the new §1031.320(n)(10), a transferee entity means any person other than a transferee trust or an individual (subject to the listed exceptions in the new §1031.320(n)(10)(ii) which are primarily highly regulated entities). With exceptions, in §1031.320(n)(11), a transferee trust is generally defined as any legal arrangement created when a person places assets under the control of a trustee for the benefit of one or more persons or for a specified purpose.
- Is this a non-financed transfer? In the new §1031.320(n)(5), a non-financed transfer is defined as a transfer that does not involve an extension of credit to all transferees that is: (i) secured by the transferred residential real property, and (ii) extended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under this chapter.
If you’ve answered YES to these three questions, then this appears to be a reportable transfer.
CONTENTS OF THE NEW FinCEN REPORT
The new §1031.320(d)-(i), inclusive, details the information that must be reported to FinCEN, generally as follows:
- Reporting Person: Legal name of reporting person, category of the reporting person (per §1031.320(c)), and street address.
- Transferee: Full legal name of the entity or trust, Internal Revenue Service Taxpayer Identification Number (IRS TIN), address, and other identifying information. PLUS the following information for each beneficial owner and signing individual: (i) full legal name, (ii) date of birth, (iii) current residential street address, and (iv) IRS TIN (but if the beneficial owner does not have an IRS TIN then other information from a foreign jurisdiction)
- Transferor: If the transferor is an individual: (i) full legal name, (ii) date of birth, (iii) current residential street address, and (iv) IRS TIN (but if the beneficial owner does not have an IRS TIN then other information from a foreign jurisdiction). If the transferor is an entity or trust, then both the identifying information about the entity/trust plus the IRS TIN for the trustee of a trust.
- Residential real property: Street address, legal description, and date of closing.
- Payment: (i) Amount of the payment, (ii) method by which the payment was made, (iii) if the payment was paid from an account held at a financial institution, the name of the financial institution and the account number, and (iv) name of the payor on any wire, check, or other type of payment if the payor is not the transferee entity or transferee trust.
- Hard Money, Private and Other Similar Loans: Whether the reportable transfer involved credit extended by a person that is not a financial institution with an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions.
WHO MUST REPORT
Section 1031.320(c) creates a cascading order of who is the responsible reporting person in this order:
- The person who is listed as the settlement agent on a settlement statement
- The person who prepares the settlement statement
- The person who files the deed for recordation
- The person who issues the owner’s title insurance policy
- The person who disburses the greatest amount of funds
- The person who provides an evaluation of the status of the title
- The person who prepares the deed (and if no deed is involved, then whoever drafted the legal instrument to transfer title, including the stock certificate in a cooperative housing corporation).
In the event that there are multiple parties who may be a potential reporting person, §1031.320(c)(4) provides that a written designation agreement may be entered into by the multiple parties designating who will be treated as the reporting person with respect to the transfer.
PENALTIES FOR FAILURE TO REPORT (CIVIL AND CRIMINAL)
FinCEN did not develop a penalty structure specific to this new rule, so the penalties for failure to comply fall generally in line with any violation of the Bank Secrecy Act1:
- Negligent violations are subject to a civil penalty of not more than $1,394 for each violation and an additional civil penalty of up to $108,489 for a pattern of negligent activity.
- Willful violations are subject to imprisonment of up to 5 years or a criminal fine of up to $250,000, or both. Willful violations may also be accompanied by a civil penalty, the amount of which is the greater of (a) $69,733, and (b) the amount involved in the transaction (with a cap of $278,937).
FAQs
FinCEN has agreed to provide FAQs as it implements this new rule. As of the writing of this article, FinCEN has not created either its FAQ website or its reporting portal, but the staff at Knight Barry Title has started to field questions about this new reporting, so we will do our best to summarize these questions and our initial thoughts. We will continue to monitor and report on developments.
Question: What about a transaction due to a Transfer on Death Document?
Knight Barry's Thoughts: The recording of the document to give public notice of the death of the decedent, and thus the passing of the real estate to the TOD (Transfer on Death) beneficiary, does not appear to be reportable per the exception to the reporting in §1031.320(b)(2)(ii). However, when the TOD beneficiary sells or conveys the property to a 3rd party, that might be reportable (you’ll have to do the 3-part analysis to determine if the second transaction is reportable). REFERENCE: For more information about transfers resulting from death being excepted from the reporting requirements, see the discussion starting at the bottom of Page 32 of the
final rule.
Q: Husband and wife own residential real property and transfer it into their revocable trust for estate planning purposes. Is this reportable?
T: This seems to fall squarely within the exception to the reporting requirement in §1031.320(b)(2)(vi), excepting a transfer that fits the following criteria: (i) transfer for no consideration, (ii) made by an individual, either alone or with the individual’s spouse, and (iii) to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor. REFERENCE: For additional information about excepted transfers for estate planning techniques, see the discussion at the top of Page 34 of the
final rule.
Q: Transfers for no consideration between LLC to Sole and Sole to LLC to change the name of the same LLC are also included in the Trust exemption?
T: Sorry, we don’t read the final rule that way. In fact, FinCEN was specifically asked to extend the exception for transfers from an individual to that same individual’s LLC, and FinCEN declined. Specifically, see the discussion on Page 35 of the
final rule wherein FinCEN states, “FinCEN also does not believe that this same logic can be extended to justify excepting transfers of property by an individual to a legal entity owned or controlled by such individual, as some commenters suggested. In the exception described above concerning no consideration transfers to trusts, the exception applies when the transferor of residential real property is also the grantor or settlor of the trust—the identity of the grantor or settlor of the trust is a fact tied to the creation of the trust, is revealed on the face of the trust instrument, and generally cannot be changed. Although the trustee and beneficiaries of the trust may change over time, the identification of the settlor or grantor of the trust generally allows FinCEN to identify the source of the property being contributed to the trust, a factor critical to the identification and prevention of money laundering. That same identification and persistent connection with the transferor does not exist in the context of transfers of residential real property to a legal entity, where it is common for various owners of interests in the entity to each contribute assets to it.”
Q: How about Gift Funds - would we have to report those?
T: Depends on the transaction and how the buyer is obtaining the remaining funds to purchase the property: (i) if the remaining purchase funds are coming from a bank that has an anti-money laundering program and an obligation to report suspicious transactions, then this would not be a reportable transfer, or (ii) if the remaining purchase funds are coming from anyone else (including a hard money lender), then this appears to be reportable.
Q: What if they pull from a HELOC to pay for the cash transaction?
T: Seems reportable since the mortgage loan is secured against a different property, not the property being acquired. REFERENCE: See the definition of non-financed transfer in §1031.320(n)(5).
Q: What about when Mom and Dad finance the purchase of the home?
T: Provided that the other two components of the 3 part test are met (residential property and either a transferee entity or transferee trust), this seems reportable since the acquisition is being financed by Mom and Dad, who don’t have an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions. REFERENCE: See the definition of non-financed transfer in §1031.320(n)(5).
Q: What happens if a property is sold on a land contract or contract for deed to an entity—is it reportable?
T: Seems reportable since the acquisition is being financed by a party that does not have the obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions. REFERENCE: See the definition of non-financed transfer in §1031.320(n)(5).
Q: If we have a tiered entity (the other entity is the member), is it safe to assume we need to drill down to the humans involved?
T: Yes, we think we’ll need to drill down to a flesh and blood individual. REFERENCE: See §1031.320(n)(1) and the definition of “beneficial owner,” providing that we look to 31 CFR 1010.380(d) and 31 CFR 1010.380(d)(1) to identify who are the beneficial owners. In 31 CFR 1010.380(d), a beneficial owner is defined as “...any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.”
Q: What if the legal entity (either transferee or transferor) has filed its report under the Corporate Transparency Act identifying its beneficial owners and signers? Is a real estate transfer to or from that entity still reportable?
T: Yes. Commentators, including the American Land Title Association, specifically asked FinCEN this question during the rule's comment period, and FinCEN declined to accept transfers due to an existing report under the Corporate Transparency Act.
Q: It seems like a lot of new information that must be gathered and reported. How long will it take?
T: Per the
final rule, FinCEN believes that it will take 2.75 hours for a Reporting Person to report on each transfer. This is in addition to the anticipated 75 minutes of initial training and 30 minutes annually for refresher courses. The American Land Title Association believes the training time estimate is slightly low.
Q: Do you think FinCEN will expand the scope of reportable transfers to commercial properties (not just residential ones)?
T: Why wouldn’t they? If FinCEN is catching the bad guys in part due to this reporting, why wouldn’t they expand the reporting to at least some commercial properties?
For a more detailed discussion about the new rule and your role and obligation to assist FinCEN in identifying potential money laundering, please contact Cheri Hipenbecker and Meghan Grulkowski, members of Knight Barry’s legal team, for our education and training opportunities.
References
1For reference, see Table 1 to 31 CFR 1010.821.