Since 2016, the Financial Crimes Network of the Treasury Department ("FinCEN") has issued orders requiring title insurance companies to report certain non-financed residential real estate transactions to entities and trusts above a certain price threshold. These "Residential Real Estate Geographic Targeting Orders" or "GTOs" are limited to certain locations in the United States. They have been expanded since 2016 and currently address certain metropolitan areas in California, Florida, Hawaii, Illinois, Massachusetts, Nevada, New York, Texas, and Washington. The reason for the reporting requirements is the determination by FinCEN that cash transactions of residential real estate are a popular means of laundering illegal moneys.
On Wednesday, FinCEN published notice of proposed rule making for a nationwide order that would require attorneys, title companies, brokers, and other real estate professionals ("Reporting Persons") to report certain sales and donations to entities and trusts without regard to size of the purchase price. Like the GTOs, this regulation would not address transactions that are financed by financial institutions that are required to have established anti-money laundering procedures and that are required to file suspicious activity reports. However, loans by private lenders that are not subject to those regulatory requirements would not exempt the Reporting Person from the obligation to report transactions.
Notably, the proposed rule would require filing a "Real Estate Report" on a form that has not yet been published. It would require submission of beneficial ownership information for the legal entity or trust, not unlike the information required under the Corporate Transparency Act. The rule would include a wide list of exceptions for transferee entities, including large, regulated entities. Certain types of transfers, including those that result from the death of a property owner, a divorce, or a transfer to a bankruptcy estate, would also be excluded. Notably not excluded are other types of common estate planning transfers, such as creation of family management trusts and transfers of real property to those trusts.
The proposed rules, as applied to the common estate planning transactions, will create a substantial burden on practitioners and their clients.
Links to the proposed rule, as well as explanatory details, are listed below. Comments to the rule may be made for 60 days after the rule is published in the Federal Register.
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