Beginning on March 1, 2026, the Residential Real Estate Rule (the “Rule”) will require reports to be submitted to the Financial Crimes Enforcement Network (“FinCEN”) in connection with certain residential real estate transfers. As explained in FinCEN’s FAQs on the Rule, the reports are intended to help deter money laundering. A report is only required if the transfer falls within the Rule’s meaning of “reportable transfer,” which is a “non-financed transfer to a transferee entity or transferee trust of an ownership interest in residential real property.” This article introduces the Rule’s reporting requirements by explaining how to identify who is required to submit a report and breaking down the meaning of “reportable transfer.”
Who is a “reporting person”?
The Rule requires only certain people involved in a real estate transaction, which the Rule calls the “reporting person”, to submit the necessary reports. In most circumstances, the reporting person will be the settlement agent for the transfer.
The Rule explains how to identify the reporting person for transactions that do not involve a settlement agent—depending on the circumstances, the reporting person may be the person who prepared the settlement statement for the transfer, the person who prepared the deed or submitted it to the municipality for recording, or the person who examined or is insuring title.
What is considered to be “residential real property”?
Under the Rule, “residential real property” is property located in the United States that is designed principally for occupancy by one to four families. The term includes structures that are designed for such occupancy, as well as land on which the transferee intends to build such a structure, a unit designed for such occupancy that is within a structure (such as a condominium unit), and shares in a cooperative housing corporation. These types of properties will be considered “residential” even if the property contains a commercial space or use.
FinCEN’s FAQs provide guidance on certain circumstances that may be slightly less clear-cut. For instance, vacant property will be “residential real property” if the property consists of multiple vacant lots that will each be developed with a single-family home or a large parcel that will be subdivided into separate lots that will each be developed with a single-family home. The property will not be considered residential real property if the property is vacant land and the transferee, at the time of the transfer, does not intend to build a structure designed for occupancy by one to four families or if the structure is designed to accommodate more than four families.
What is a “non-financed transfer”?
The Rule defines “non-financed transfer” 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 [the regulations governing FinCEN].
In other words, the transfer will be considered “non-financed” if the transferee is obtaining financing that will be secured by different property or assets or if the financing is obtained from a lender that does not fit within the Rule’s meaning of “financial institution.” The FAQs provide examples of entities that are likely to be considered financial institutions, including banks, credit unions, savings and loan associations, mortgage companies or brokers, Fannie Mae, or Freddie Mac.
If a single transferee obtains financing for only a portion of the property’s purchase price, the transfer is not “non-financed” unless the transfer meets the definition above. If multiple transferees are involved in the purchase of residential real property, however, and some obtain financing and others do not, the transfer will be reportable with respect to each transferee entity or trust who did not obtain financing.
What types of transferees are covered by the Rule?
The Rule only requires a report to be filed if the transferee is an entity or trust. The Rule states that certain types of entities and trusts are not a “transferee entity” or “transferee trust,” such as governmental authorities, banks, public utilities, publicly traded companies, and statutory trusts. In other words, a report is not required if the transferee is an individual. Likewise, a report is not required for entities or trusts that are explicitly excluded from the Rule’s definitions of transferee entity or trust.
If there are multiple transferees, at least one of which is an transferee entity or trust, the transfer is reportable (assuming it constitutes residential real property and is a non-financed transfer), even if the other transferees are individuals. The reporting person, however, will only be required to submit information regarding the transferees that are a transferee entity or trust.
Are there any exceptions?
The Rule identifies certain types of transfers that do not fall within the meaning of “reportable transfer,” including easements, transfers resulting from the death of an individual or divorce, and transfers for no consideration by an individual to their and/or their spouse’s trust. Other transfers for no consideration, however, such as gifts, will generally be reportable.
What are the potential penalties for failure to file a necessary report?
Careful attention should be given to the Rule’s meaning of “reporting person” and “reportable transfer,” as FinCEN may impose relatively harsh penalties for failure to file a necessary reports, including civil penalties of up to $1,430 for each negligent violation and up to $111,308 for a pattern of negligence (as of 2025). Willful violations could result in higher civil penalties, as well as imprisonment of up to five years and/or a criminal fine of up to $250,000.