Taylor K. Gersch, Gleaves Swearingen LLP
Introduction
Effective December 1, 2025, the Financial Crimes Enforcement Network (FinCEN) will implement a new nationwide reporting requirement aimed at helping government agencies prevent illicit actors from anonymously laundering money through residential real estate transactions. This requirement, issued by the US Department of Treasury, is set forth in the final rule 89 Fed. Reg. 70258 (Final Rule) published on August 29, 2024. Efforts are being made to overturn the new reporting requirement, but for now, the effective date continues to be December 1, 2025.
The Final Rule requires certain individuals involved in real estate transactions to report to FinCEN information about themselves, the transferor, the transferee, the real property, and the payment information when the transaction involves a nonfinanced transfer of residential real property to a trust or legal entity. The final rule curtails the ability of illicit actors to evade the scrutiny of financial institutions that have Anti-Money Laundering (AML) programs, Countering the Financing of Terrorism (CFT) programs, and Suspicious Activity Report (SAR) requirements.
How lawyers may be affected
Business lawyers may very well find themselves in the position of filing one of these reports with FinCEN come December 1. One of the most common scenarios where this reporting requirement will arise for lawyers is where a married couple owns residential property and they want to transfer the property into a legal entity. This qualifies as a nonfinanced transfer of residential real property to an entity. If there is no closing or settlement agent involved, and the attorney filed the deed with the recorder’s office, then the lawyer has an obligation to file the report with FinCEN.
To understand whether a transaction is considered a reportable transfer, let’s walk through the basics with a hypothetical case study.
Your client wants to purchase a small ranch-style home in Eugene from her aunt. She wants to pay with cash, and she wants to buy it in the name of her limited liability company because she plans to remodel the home and use it as a rental property. Is this a reportable transfer according to FinCEN’s new rule? Yes, and here’s why:
Residential real property
The small ranch style home is a residential property and therefore meets the first element for a reportable transfer. Residential real property is property located in the US that meets one of the following requirements:
- Contains a structure designed principally for occupancy by one to four families (includes single-family houses, townhouses, and entire apartment buildings)
- Is land (vacant or unimproved) on which the transferee intends to build a structure designed principally for occupancy by one to four families
- Is a unit designed principally for occupancy by one to four families within a structure (e.g., a condominium)
- Are shares in a cooperative housing corporation
Additionally, the transfer of mixed-use property may be reportable if a portion is considered residential real estate (e.g., a single-family residence located above a commercial enterprise).
Nonfinanced transfer
The client’s LLC is paying all cash to purchase the home, and thus this transaction is a nonfinanced transfer. A nonfinanced transfer is a transfer that does not involve an extension of credit to all transferees that is both:
- Secured by the transferred residential real property; and
- Extended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions.
Types of nonfinanced transfers include all-cash transfers and transfers without consideration (i.e., gifts). Do not think that a nonfinanced transfer can only be a cash sale. A nonfinanced transfer can also include private or seller financing since those lenders often do not have an obligation to maintain AML or CFT programs or have SAR requirements.
Exceptions to reporting
The client’s proposed transaction does not fall under any of the following exceptions where a transfer is not reportable:
- A transfer that is a grant, transfer, or revocation of an easement
- Transfer resulting from the death of an individual, whether pursuant to the terms of a will, the terms of a trust, the operation of law (transfers from intestate succession, surviving joint owners, or transfer on death deeds), or by contractual provision (transfers from beneficiary designation)
- Transfer incident to divorce or dissolution of marriage or civil union
- Transfer to a bankruptcy estate
- Transfer supervised by a court in the U.S.
- Transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, their spouse, or both of them are the settlor(s) or grantor(s)
- Transfer to a qualified intermediary for purposes of 1031 exchange
- Transfer for which there is no reporting person
Reporting person
Now the question is who actually files the report for the client. The final rule institutes a cascading approach to determine primary filing responsibility, and the lawyer should evaluate the parties involved in the transaction and whether any have the primary filing responsibility over the lawyer. A good rule of thumb is that if there is no closing or settlement agent involved, the lawyer is likely up next if they filed the deed with the recorder’s office.
Assuming the lawyer is required to file the report with FinCEN, the lawyer must file information about themselves, the transferee, the transferor, the real property, and the payment information. Much of the information required is similar to that collected under FinCEN’s Corporate Transparency Act, particularly regarding beneficial ownership, though the rules are not identical.
Electronic filing, retention of records, and penalties
Once the lawyer compiles all the necessary information for the report, the lawyer electronically files the information in a “Real Estate Report.” The report must be filed by the later of (1) the final day of the month following the month in which closing occurred or (2) thirty calendar days after the date of closing. The reporting person must maintain a copy of the certification by the transferee or transferee’s representative as to the identities of the beneficial owner of the transferee for five years. But the reporting person is not required to retain a copy of the real estate report.
The regulation does not explicitly address potential penalties for failing to file a report. Instead, according to the Federal Register, “FinCEN believes that it is unnecessary to list potential penalties in the regulatory text because the applicable penalties are already set forth by statute,” including the Bank Secrecy Act.
At the end of the day, the client can still purchase the small ranch-style home. But the lawyer will need to analyze the potential reporting obligations they may have under the cascading approach. ♦
Addendum 01/20/2026: The original posting of this article included a confusing definition of a non-financed transfer (under “Non-financed transfer”). The wording has been corrected.
Addendum 10/30/2025: The original posting of this article stated that “The report must be filed by the later of (1) the final day of the month in which closing occurred”. It has been corrected to “The report must be filed by the later of (1) the final day of the month following the month in which closing occurred”.
Addendum 10/10/2025: On September 30, 2025, FinCEN announced the postponement of the reporting requirements of the Residential Real Estate Transfers Rule until March 1, 2026.