FinCEN’s new real estate disclosure rules

This rule, codified at 31 CFR 1031.320, requires “reporting persons” performing specified closing or settlement functions on “reportable transfers” of residential real property to file a real estate report (RER) with FinCEN.

A transfer is considered a reportable transfer if all of the following are true: 

1. The property includes (or will include) a residential real property use for one to four families;
2. The transfer is non-financed (a financed transfer must include an extension of credit by a lender subject to federal disclosure requirements which is secured by the subject property);
3. The property is transferred to a legal entity or trust (not to an individual); and
4. The property is not exempt.

A reporting person is a person who performs specified closing or settlement functions. This includes settlement agents, title insurance agents, escrow agents, and attorneys. Each transaction requires only one reporting person to file the RER, which defaults to the person who performs the highest-ranked function on FinCEN’s list of closing actions. The parties can also predetermine who will file the RER via a designation agreement.

The RER can be filed electronically with FinCEN and must include information on the reporting person, the transferors, the transferees, the beneficial owners of the transferees, the individuals signing the closing documentation, the property, and the consideration. 

The RER must be filed by the later of the last day of the month following the month in which the closing occurred, or thirty calendar days after the closing date. Any document certifying the accuracy of the beneficial ownership information and any designation agreement must be retained for five years.

Entities exempt from filing an RER include securities issuers, exchange companies, clearing agencies, governmental authorities, banks, credit unions, insurance companies, public utilities, securities brokers or dealers, and statutory trusts. 

The rule also excludes certain transfers from reporting, including: 

1. Transfers resulting from death, divorce, bankruptcy, or court supervision;
2. Transfers for no consideration by an individual (alone or with a spouse) to a trust where such individuals are the grantors; 
3. Transfers to qualified intermediaries for like-kind exchanges; 
4. Transfers of real property outside the United States; 
5. Transfers with no reporting person; and
6. Transfers for easements. 

Negligent violations of the rule can carry hefty civil fines. Wilful violations can carry not only large fines, but up to five years imprisonment. 

Kristy Bourgeois is a shareholder in the Sandberg Phoenix’ Business practice group. She joined the firm in September 2009 after working as a summer associate in 2008. Working primarily in the commercial real estate market, Kristy assists with national clients on all aspects of real estate transactions, including development, acquisitions, dispositions, and leasing. Kristy is Global Vice Chair of GGI's Real Estate Practice Group.