FinCEN: Residential Real Estate Rule Takes Effect March 1

The Financial Crimes Enforcement Networks (FinCEN) Residential Real Estate Rule takes effect March 1. 

The Residential Real Estate Rule requires that a report be filed with FinCEN for all reportable residential real estate transactions.

As the effective date draws near, here’s what you need to know about what triggers the reporting requirement, who files the report and what must be filed. 

What Triggers the Reporting Requirement: 
A reportable transfer is a non-financed transaction where residential U.S. real property is transferred to a transferee entity or trust, whereby that entity or trust gains an ownership interest in the property. 

Non-financed transactions, which are categorized as transactions that do not involve a lender who has an obligation to report the transaction under anti-money laundering rules, can include cash transactions, contract sales, hard money transactions, and privately financed transactions, among others. 

The rule applies to residential real estate that encompass:

• one to four family structures
• one to four family united within larger structures, such as condominiums and townhomes
• shares in housing cooperatives
  land where the transferee intends to build a 1-4 family structure

In some cases, mixed-use properties may fall into the scope of the rule, including: 

Ag land with tillable ground that has a home on the land 

Properties featuring ground floor storefronts with residences on top 

What Is A Transferee Entity? 

A transferee entity is any person other than a transferee trust or individual. 

There are certain entities that are exempt from the reporting requirements as transferees, including:

• credit unions
• banks
• public utilities
• insurance companies

Transferee entities can include corporations, LLC’s and partnerships, estates, and others. 

What is a Transferee Trust?
A transferee trust is a legal arrangement allowing the grantor or settlor of the trust to put assets under a trustee’s control either for the benefit of others or for specific purposes. Only certain types of trusts are exempted from the reporting requirements.

Who Files The Report? 
The responsibility for filing the report follows the “Cascade Rule,’ which defines seven different levels of responsibility for filing a Real Estate Report pursuant to a sale. 

However, the scenarios that are most likely to trigger a REALTOR’s® real estate report filing responsibility are: 

• when they serve as the closing or settlement agent for the transaction
• if they prepare the closing or settlement statement
• if they disburse the greatest proportion of the funds disbursed from the transaction
• if they are responsible for filing the deed with the County Recorder

When Is Filing Due? 
Filings are due by the later of either the final day of the month after the transaction has closed, or 30 days after closing. The electronic filing must be retained by the filer for five years. 

What Happens If I Don’t File? 
Failure to file the report may result in a civil penalty of not more than $1,394 per violation. 

In the case that a pattern of negligent activity is detected, an additional civil money penalty of up to $108,489 will be issued. 

For willful violations, penalties include a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both, in addition to a civil penalty not to exceed the greater of the amount involved in the transaction or a set limit of $69,733.