On February 16, 2024, the Treasury Department published a proposed regulation relating to new reporting requirements for certain transfers of residential real estate consistent with its rulemaking authority under the Bank Secrecy Act. The rule would require the filing of a Real Estate Report with the Financial Crimes Enforcement Network (FinCEN) after the transfer of residential real estate. Reportable transfers include any transfer, including many gratuitous transactions, of residential real property to an entity or trust not already subject to the Anti-Money Laundering and Countering the Financing of Terrorism regulatory regime. The Real Estate Report will need to be filed electronically on the FinCEN website no more than thirty (30) days after closing.
Residential Real Property
Residential real property includes: (1) any real property located in the United States with a structure designed to be occupied by one to four families, (2) vacant land in the United States zoned for a structure designed for one to four families, or (3) shares in a cooperative housing corporation in the United States. This applies even if there is a commercial component to the property, such as a residential unit located above a commercial enterprise. The proposed rule intends to include single-family homes, townhomes, condominiums, cooperatives, and small apartment buildings designed for four or fewer families. Property within the United States would include property within any of the fifty states, the District of Columbia, the Indian lands as defined in the Indian Gaming Regulatory Act, and any territory or possession of the United States. The broad geographic scope intends to discourage money laundering schemes in exempt territories.
Covered Transferees and Exemptions
The reporting requirements apply when the transferee is not an individual or an exempt entity or trust. For an individual, the real property must be titled in the owner's name to be exempt from the reporting requirements. Certain entities may be exempt because they are already subject to sufficient data collection, such as securities reporting issuers, including companies that must register securities with the Securities and Exchange Commission. Other examples of exempt entities include depository institution holding companies, banks, credit unions, insurance companies, subsidiaries of exempt entities, broker/dealers in securities, and public utilities. Non-profit entities, however, will not be exempt from the reporting requirements.
Reportable Transfers
The proposed rule makes transfers reportable regardless of value or purchase price. Accordingly, gratuitous transfers like gifts and transfers to trusts would generally be included. The rule does make exceptions for certain low-risk transfers or transfers already subject to sufficient scrutiny. Financed transfers where the real property serves as security for the loan and the financial institution making the loan has an obligation to maintain an Anti-Money Laundering program and file Suspicious Activity Reports would be exempt from the filing requirements. Low-risk transfers resulting in the grant, transfer, or revocation of an easement also enjoy an exemption. Additionally, transfers resulting from death, divorce, or bankruptcy are exempt. Finally, transfers that do not involve a reporting person, discussed below, enjoy an exemption.
Cascading Tiers
The proposed rule creates a cascading tier of reporting persons who will be subject to the reporting requirements. In the first tier, real estate professionals providing certain settlement services in the settlement process must compile the necessary information and file the report. Specifically, the person listed as the closing or settlement agent on a settlement or closing statement usually will fall into this tier. If no one executes the specific settlement functions in the first tier, the second reporting tier falls to the person that underwrites an owner's title insurance policy of the transferee. If there is no person underwriting a title insurance policy, the third reporting tier falls to the person that disburses the greatest amount of funds in connection with the transfer. If no person meets the first three criteria, the fourth reporting tier falls to the person that prepares an evaluation of the title status. Finally, when no person in the first four tiers participates in the transaction, the fifth reporting tier falls to the person who prepares the deed.
Beneficial Owners
The proposed Real Estate Report will collect information about the beneficial owners of the transferee entity or transferee trust. The definitions of beneficial ownership largely follow the definitions in the Corporate Transparency Act. Real Estate Reports must include information for any individual who, directly or indirectly, either exercises substantial control over the transferee entity or owns or controls at least twenty-five percent (25%) of the ownership interests of the transferee entity. Additionally, the Report must include information on beneficial owners of transferee trusts including anyone who is a trustee, otherwise has authority to dispose of trust assets, is a beneficiary who is the sole permissible recipient of income and principal with a right to demand distribution of substantially all of the assets of the trust, is a grantor or settlor of a revocable trust, or is the beneficial owner of a legal entity or trusts holding one of these positions. However, the rule would not require reporting of subsequent changes in the beneficial ownership of the transferee entity or trust.
For further questions regarding this topic, contact Liskow attorneys Kevin Naccari, Jr. and Leon Rittenberg, III.
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