The U.S. Treasury Department, through FinCEN (the Financial Crimes Enforcement Network), has implemented a new rule called the Residential Real Estate Reporting Rule, formally titled “Anti-Money Laundering Regulations for Residential Real Estate Transfers.”
This rule is designed to increase transparency in certain real estate transactions and help prevent money laundering through the use of anonymous companies purchasing property.
Here is the simple version of what this means for real estate transactions:
1. The rule mainly applies to CASH purchases through entities.
If a buyer purchases residential real estate through an LLC, corporation, partnership, or certain trusts and does not use a mortgage, information about the transaction may now need to be reported to FinCEN.
2. What is considered “residential real property” under this rule?
For purposes of this regulation, residential real property generally includes:
• Single-family homes
• Condominiums
• Townhomes
• Cooperatives
• Residential buildings designed for 1–4 families
• Vacant land where a 1–4 family residential structure will be built
Large commercial properties and larger multi-family properties are generally not the focus of this rule.
3. The goal is to prevent money laundering through real estate.
The government created this rule to identify the real individuals behind companies purchasing property, particularly in high-value cash transactions.
4. Someone involved in the closing must file the report.
Typically this will be the title company, settlement agent, or closing attorney, depending on who is handling the settlement.
5. Most traditional homebuyers will not notice this rule.
If a buyer purchases a home with a mortgage in their personal name, banks already perform identity verification, so this new reporting requirement generally does not apply.
6. Transactions most likely to be affected include:
• Cash purchases by LLCs or corporations
• Investor purchases through entities
• Certain trust purchases of residential property
In these situations, the closing professional may need to collect information identifying the beneficial owners (the real people behind the entity) and submit a report to FinCEN.