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On February 16, 2024, the Treasury Department published a proposed regulation relating to new reporting requirements for certain transfers of residential real estate consistent with its rulemaking authority under the Bank Secrecy Act. The rule would require the filing of a Real Estate Report with the Financial Crimes Enforcement Network (FinCEN) after the transfer of residential real estate. Reportable transfers include any transfer, including many gratuitous transactions, of residential real property to an entity or trust not already subject to the Anti-Money Laundering and Countering the Financing of Terrorism regulatory regime. The Real Estate Report will need to be filed electronically on the FinCEN website no more than thirty (30) days after closing.

Residential Real Property

Residential real property includes: (1) any real property located in the United States with a structure designed to be occupied by one to four families, (2) vacant land in the United States zoned for a structure designed for one to four families, or (3) shares in a cooperative housing corporation in the United States. This applies even if there is a commercial component to the property, such as a residential unit located above a commercial enterprise. The proposed rule intends to include single-family homes, townhomes, condominiums, cooperatives, and small apartment buildings designed for four or fewer families. Property within the United States would include property within any of the fifty states, the District of Columbia, the Indian lands as defined in the Indian Gaming Regulatory Act, and any territory or possession of the United States. The broad geographic scope intends to discourage money laundering schemes in exempt territories.

Covered Transferees and Exemptions

The reporting requirements apply when the transferee is not an individual or an exempt entity or trust. For an individual, the real property must be titled in the owner’s name to be exempt from the reporting requirements. Certain entities may be exempt because they are already subject to sufficient data collection, such as securities reporting issuers, including companies that must register securities with the Securities and Exchange Commission. Other examples of exempt entities include depository institution holding companies, banks, credit unions, insurance companies, subsidiaries of exempt entities, broker/dealers in securities, and public utilities. Non-profit entities, however, will not be exempt from the reporting requirements.

Reportable Transfers

The proposed rule makes transfers reportable regardless of value or purchase price. Accordingly, gratuitous transfers like gifts and transfers to trusts would generally be included. The rule does make exceptions for certain low-risk transfers or transfers already subject to sufficient scrutiny. Financed transfers where the real property serves as security for the loan and the financial institution making the loan has an obligation to maintain an Anti-Money Laundering program and file Suspicious Activity Reports would be exempt from the filing requirements. Low-risk transfers resulting in the grant, transfer, or revocation of an easement also enjoy an exemption. Additionally, transfers resulting from death, divorce, or bankruptcy are exempt. Finally, transfers that do not involve a reporting person, discussed below, enjoy an exemption.

Cascading Tiers

The proposed rule creates a cascading tier of reporting persons who will be subject to the reporting requirements. In the first tier, real estate professionals providing certain settlement services in the settlement process must compile the necessary information and file the report. Specifically, the person listed as the closing or settlement agent on a settlement or closing statement usually will fall into this tier. If no one executes the specific settlement functions in the first tier, the second reporting tier falls to the person that underwrites an owner’s title insurance policy of the transferee. If there is no person underwriting a title insurance policy, the third reporting tier falls to the person that disburses the greatest amount of funds in connection with the transfer. If no person meets the first three criteria, the fourth reporting tier falls to the person that prepares an evaluation of the title status. Finally, when no person in the first four tiers participates in the transaction, the fifth reporting tier falls to the person who prepares the deed.

Beneficial Owners

The proposed Real Estate Report will collect information about the beneficial owners of the transferee entity or transferee trust. The definitions of beneficial ownership largely follow the definitions in the Corporate Transparency Act. Real Estate Reports must include information for any individual who, directly or indirectly, either exercises substantial control over the transferee entity or owns or controls at least twenty-five percent (25%) of the ownership interests of the transferee entity. Additionally, the Report must include information on beneficial owners of transferee trusts including anyone who is a trustee, otherwise has authority to dispose of trust assets, is a beneficiary who is the sole permissible recipient of income and principal with a right to demand distribution of substantially all of the assets of the trust, is a grantor or settlor of a revocable trust, or is the beneficial owner of a legal entity or trusts holding one of these positions. However, the rule would not require reporting of subsequent changes in the beneficial ownership of the transferee entity or trust.

For further questions regarding this topic, contact Liskow attorneys Kevin Naccari, Jr. and Leon Rittenberg, III.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney-client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

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Since 2016, the Financial Crimes Network of the Treasury Department (“FinCEN”) has issued orders requiring title insurance companies to report certain non-financed residential real estate transactions to entities and trusts above a certain price threshold. These “Residential Real Estate Geographic Targeting Orders” or “GTOs” are limited to certain locations in the United States.  They have been expanded since 2016 and currently address certain metropolitan areas in California, Florida, Hawaii, Illinois, Massachusetts, Nevada, New York, Texas, and Washington.  The reason for the reporting requirements is the determination by FinCEN that cash transactions of residential real estate are a popular means of laundering illegal moneys. 

On Wednesday, FinCEN published notice of proposed rule making for a nationwide order that would require attorneys, title companies, brokers, and other real estate professionals (“Reporting Persons”) to report certain sales and donations to entities and trusts without regard to size of the purchase price.  Like the GTOs, this regulation would not address transactions that are financed by financial institutions that are required to have established anti-money laundering procedures and that are required to file suspicious activity reports.  However, loans by private lenders that are not subject to those regulatory requirements would not exempt the Reporting Person from the obligation to report transactions.

Notably, the proposed rule would require filing a “Real Estate Report” on a form that has not yet been published. It would require submission of beneficial ownership information for the legal entity or trust, not unlike the information required under the Corporate Transparency Act.  The rule would include a wide list of exceptions for transferee entities, including large, regulated entities.  Certain types of transfers, including those that result from the death of a property owner, a divorce, or a transfer to a bankruptcy estate, would also be excluded.  Notably not excluded are other types of common estate planning transfers, such as creation of family management trusts and transfers of real property to those trusts.

The proposed rules, as applied to the common estate planning transactions, will create a substantial burden on practitioners and their clients.

Links to the proposed rule, as well as explanatory details, are listed below.  Comments to the rule may be made for 60 days after the rule is published in the Federal Register.

News Release

Fact Sheet

Notice of Proposed Rulemaking

Contact Liskow attorneys Marilyn Maloney and Leon Rittenberg III for further questions regarding this topic and visit our Real Estate and Tax practice pages.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney-client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

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The United States Department of Justice (DOJ) recently announced a nationwide policy that gives credits for companies that make “voluntary self-disclosures” for corporate misconduct. The policy builds on changes to DOJ’s Corporate Enforcement Policy that was announced in January.

The U.S. Attorneys’ Offices’ (USAO) Voluntary Self-Disclosure Policy, which was prepared by a Corporate Criminal Enforcement Policy Working Group consisting of U.S. Attorneys from various districts across the country, sets forth the standard for defining and crediting such disclosures. The goal of this policy is to emphasize individual accountability and quick case resolution, while also providing transparency and predictability for the reporting companies. To constitute a “voluntary self-disclosure” under the new policy, each of the following requirements must be met: the disclosure must (1) be made voluntarily and not pursuant to preexisting obligations; (2) be made before the misconduct is publicly reported or otherwise known to the DOJ, prior to an imminent threat of disclosure or government investigation, and  within a “reasonably prompt” time after the company becomes aware of the misconduct; and (3) include all relevant facts and be accompanied by certain actions. Understanding that a company may not have all the relevant facts at the time of disclosure, the policy advises that a company should make clear that the disclosure is based on a preliminary investigation or assessment of information with the expectation that the company acts quickly to preserve and produce all relevant information and provide updates to the USAO.

The policy outlines significant benefits in the event of company misconduct and a subsequent disclosure that meets the policy’s requirements. First, absent “aggravating factors,” the USAO will not seek a guilty plea as long as all criteria[1] are met, and secondly, the USAO can choose not to pursue criminal penalties. Even if a USAO feels a criminal penalty is necessary, it will not impose a penalty greater than 50% below the low end of the U.S. Sentencing Guidelines. Finally, the USAO will not require the imposition of an independent compliance monitor if the company can show it has implemented and tested an effective compliance program.

The new policy is an important tool that companies can utilize when considering how to handle situations involving corporate misconduct.  It is noted, however, that although this new policy sets out the criteria for voluntary self-disclosures and resulting incentives for these disclosures, the DOJ and individual USAOs maintain considerable discretion in determining whether the disclosure requirements were met and the consequences that disclosing companies face. As such, it is prudent for companies to consult counsel immediately upon learning of any potential misconduct that could trigger the self-disclosure policy.

[1] The USAO will not seek a guilty plea where a company has (a) voluntarily self-disclosed in accordance with the criteria set forth above, (b) fully cooperated, and (c) timely and appropriately remediated the criminal conduct.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will b