FinCEN’s Anti-Money Laundering Regulations for Residential Real Estate Transfers | Falcon Rappaport & Berkman LLP

[co-author: Daryl Caffarone]

overview

In an effort to combat money laundering in the U.S. residential real estate market, the Financial Crimes Enforcement Network (“FinCEN”) has proposed new reporting requirements for certain real estate transactions. Specifically, the proposed rule would require certain individuals involved in real estate closings and settlements to file and maintain records of nonfinanced (i.e., all-cash) transfers of residential real estate to corporations and trusts. It is mandatory to do so. Therefore, this proposal: do not have Applies to transfers made directly to individuals.[1]

The purpose of this rule is to increase national transparency in the residential real estate market while assisting the Treasury Department, law enforcement, and state agencies in protecting economic and national security. This rule is tailored to report certain types of activities that the Treasury Department has determined to be high risk. FinCEN believes that the information collected includes important details about the types of real estate transfers that pose illegal financial risks.

This new rule will take effect one year after publication.

when the rule is triggered

Broadly speaking, the proposed regulations define reportable transfers, which therefore require the filing of real estate reports with FinCEN, and transfer ownership of residential real estate to the state. . Transferee entity or trust of the assignee; With some exceptions.[2] Transfers are reportable regardless of the value of the property.

residential real estate

This rule broadly covers most categories of residential real estate (e.g., single-family homes, townhomes, condominiums, co-ops, and multifamily housing designed for one to four families).

To determine whether a residential property falls within the terms of the rule, FinCEN posed three distinct questions.

1. Does the property include a structure designed primarily for occupancy of one to four families?
2. Is it vacant or undeveloped land, zoned land, or land with permission for occupancy for one to four families?
3. Is it the shares of a cooperative housing corporation?

If the answer to any of these three questions is yes, then the property falls within the parameters of the rule.[3]

Transferee company and transferee trust

This regulation would only require reporting if the transferee of ownership of residential real estate is a transferee corporation or transferee trust.[4]

• Transferee entity: This includes corporations, partnerships, real estate, associations, LLCs, nonprofit organizations, or large operating companies.[5]; Depending on the circumstances, co-investment vehicles may also be included.[6]
  • Exclusions: U.S. government authorities, securities reporting issuers, and certain banks. This includes credit unions, depository institution holding companies, money services businesses, securities broker/dealers, stock exchanges or clearinghouses, state-chartered insurance companies, public utilities, financial market entities, and registered investment companies. It is included.
    • Some of the exceptions in this rule are consistent with those in the Corporate Transparency Act (“CTA”), including whether an entity is subject to the supervision of a government agency, is a government agency, or has unlawful financial obligations. It also depends on whether there are disclosure requirements that may reduce the risk.
  • Assignee trust: A legal arrangement under which an individual (i.e., a grantor or grantor) (1) places assets under the control of a trustee for the benefit of one or more persons or for a specific purpose; or (2) Structures or similar legal arrangements. (1) and (3), whether established in the United States or a foreign jurisdiction. Whether the residential property is titled in the trust’s own name or in the name of a trustee, the trust is still considered a grantor trust.
    • Exclusions: A trust that is an issuer of a securities report or a trust that has a trustee that is an issuer of a securities report, such as a company registered with the SEC. and statutory trusts (although these may be considered transferee entities).

exception

Certain transfers are excluded from these reporting requirements, including:

• Loan remittance: Although the transfer involves the granting of credit to the transferee, only if Credit secured by transferred residential real estate and This is extended by financial institutions that already have obligations to maintain anti-money laundering (“AML”) programs and file suspicious activity reports (“SARs”).
• Low risk transfer: A transfer resulting from the grant, assignment, or cancellation of an easement. Transfer of residential property upon the death of the owner. Transfer due to divorce. Transferred to the bankruptcy estate.

Person who must submit the report

Those that require reporting are listed in a cascading format (further referred to as “cascades” in the proposal). For example, real estate professionals are required to file reports and maintain records for certain transfers. if That person performs the functions described in the cascade, and no one else performs functions higher in the cascade.

The cascade is:

1. A real estate professional who provides certain payment services during the payment process.. The person listed on the settlement or settlement statement as the settlement or settlement agent. If no one prepares the closing or settlement statement, that obligation rests with the person who files the deed or other document transferring ownership of the residential property.
2. A person who assumes a title insurance policy on behalf of a transferee..
3. The person who expended the most funds in connection with the reportable transfer. Such payments can be made in any form, including escrow accounts, trust accounts, or attorney trust accounts.
4. Who creates ratings for title status. An appraisal may take the form of a title check and is typically performed by the title insurance company in lieu of an actual insurance/opinion.
5. person who creates a deed.

Reporters must submit their reports to FinCEN within the following timeframe. 30 days From the date on which the transferee company receives ownership of the residential property. Reporters are also required to have their reports available for inspection. 5 years After the filing date.

Information you need to provide

Information is stored on FinCEN’s secure Bank Secrecy Act (“BSA”) portal and is not accessible to the general public. Information may be collected directly from the assignee’s representative as long as the individual certifies that the information is accurate to the best of their knowledge. Additionally, FinCEN may provide forms for you to submit electronically.

The required information includes:

1. name and address. Collect the names/addresses of the reporting person, the transferee entity and trust, and the transferor’s principal place of business. If the corporation is a trustee, collect the place of trust management.
2. citizenship.
3. Unique identification number. Unique ID numbers include IRS Taxpayer ID Numbers (TINs), SSNs, and EINs.
4. Representative capacity of the person signing.
5. Payment Information. Includes the total amount of consideration paid by all assignees in respect of the property, the method of each payment made, the account and financial institution used to make the payment, and (if the payer is other than the assignee company/trust) the name of the payer. Masu. payment form.
6. Information regarding residential real estate. Property address, legal description (section, lot, block, etc.). Reported for each property involved in the transfer.

[1] Department of the Treasury, Financial Crimes Enforcement Network: 31 CFR Ch. Available at: https://public-inspection.federalregister.gov/2024-02565.pdf. (hereinafter referred to as “FinCEN proposal”)

[2] FinCEN proposal, 36.

[3] FinCEN proposal, 22

[4] FinCEN proposal, 24.

[5] A large business entity is one that (1) employs 20 or more full-time employees in the United States, and (2) has gross receipts of $5 million or more on its previous year’s federal income tax return filed in the United States. is defined as a company that certifies that (3) have a sales presence in a physical office within the United States; FinCEN proposal, 31.

[6] FinCEN proposal, 28.