The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has created a new nationwide reporting rule for certain real estate transactions. The goal is to prevent money laundering through anonymous real estate purchases. But this rule only affects a small percentage of closings, and we’ll let you know early in your transaction if yours is one of them.
Which real estate transactions are reportable?
Most closings will not fall under the new rule. A transaction only becomes reportable only when all of the following apply:
- Residential real estate is being transferred. The property is a home, condo, or 1-4 family building, or vacant land intended for residential use.
- The purchase is for cash or financed by a hard money loan, private loan, or seller financing. Gift transfers would also fall into this category of reportable transactions. Traditional banks and credit unions already report similar information, so no FinCEN report is required.
- Buyer is an entity or trust. This includes LLCs, corporations, partnerships, estates, and trusts-not individual buyers. Some entities are exempt, including banks, credit unions, and governmental entities.
- No exemption applies. Exemptions are limited, but include transfers for easements, transfers resulting from a death, court-supervised transfers, or transfers by an individual into a trust they created.
How do we determine reportability?
In most instances, we can tell from the file itself. But in some situations we may ask the Buyer or Lender to sign a certification before the closing. For example:
- Buyer is an entity purchasing vacant land with no intent to build residential property
- A private lender who is, in fact, a regulated lender with an AML or SAR program.
These certifications help us confirm that no report is required. We’ll keep you updated as soon as we have what we need.
How will this affect your closing?
If your transaction is reportable, here’s what to expect.
1. Both Buyer and Seller must complete an information request.
FinCEN requires information from both parties, including:
- Entity ownership information
- Funding details from the Buyer
- Seller identity information
We’ll send you a request from FinCENRealEstateReport.com (FRER). We’re partnering with them to keep the process smooth and costs down. They specialize in this process, provide secure intake, and will notify us once the required information is complete. They also file the report after closing.
2. We cannot close until the information is provided.
FinCEN rules are strict. We are not allowed to close, record the deed, or disburse funds until all required information has been provided. Stay in contact with us throughout the process.
3. Our fee for FinCEN compliance is $250.
This fee applies only when the transaction is reportable. Because it’s the Buyer’s status that triggers the reporting requirement, the Buyer pays the fee. If the rule does apply to transaction, there is no added cost.
What Clients Usually Want to Know
Does this delay closing?
Only if the required information is not completed promptly. Once both sides complete the FRER request, we can proceed as usual.
Is my information secure?
Yes. FRER collects and stores information securely and only for the purpose of FinCEN compliance. FRER will transmit the information to the US Department of the Treasury.
How will I know if this applies to me?
We will review your file early in the process. If your transaction is reportable, we will notify you and send the FRER request.
Bottom Line
For most clients, FinCEN’s new rule will have little to no impact. But if you are buying residential property in the name of an entity or trust and using cash or a hard-money loan, there will be an additional step. The closing cannot move forward until it’s completed. We are here to make that process as simple and efficient as possible, and will guide you through it.
