FinCEN’s Final Anti-Money Laundering Rule For Real Estate Reporting

Written by Elyce Schweitzer on November 20, 2024. Posted in Compliance, Education, Industry News

The buzz is in the air with more questions than answers.

FinCEN published its Final Anti-Money Laundering Regulations for Residential Real Estate Transfers on August 28, 2024 (“Final Rule”), throwing the entire real estate industry into a state of high anxiety. What does it all mean? How do we meet its requirements? Will the expense of compliance be a financial drain — or even put us out of business? Title agents — who most often also fill the role of settlement or closing agents and would be the first elected reporter under the Final Rule — have been asking themselves these questions. While law firms and industry associations, as well as news outlets, have discussed the black letter text requirements set out in the 120-page Final Rule, no one knows exactly how this is going to play out. Of course, our biggest fear is always the great and looming unknown.

So, what can we say and do to allay those fears? First of all, the Final Rule does not become effective until December 1, 2025. This gives the industry time to become prepared and adapt to the new requirements. Secondly, ALTA has stated in its Industry News publication of August 29, 2024, that it “will develop and provide several education and training opportunities to prepare the industry for the rule’s requirements.”

Moving forward to operationalize the Final Rule, FinCEN released the unpublished version of its draft Real Estate Report on November 12, 2024 with the formal published version to follow; thereafter the collection form is open for a 60 day comment period. Additionally, FinCEN agreed to provide FAQs as it goes through implementation. If saying “help will be on the way” doesn’t quite do it for you, then think about the things that you can do now — including strategic planning — to take control, empower, educate and prepare yourself.

What kind of strategic planning are we talking about? Here are a few ideas: 

• Consider setting up a workflow to help you identify reportable transactions and direct the information, documents and forms to the appropriate personnel for processing the required report; including providing a secure intake portal to accept and store documents and forms containing non-public personal information
  • This would include identifying any order regarding a purchase of residential real property by an entity or trust/trustee for cash (without a traditional lender that has a required AML program and who must file SARS) as the term “residential real property” is defined:
    • 1-4 family occupancy residential units (e.g. a stand-alone, such as a single-family residence or townhouse; or even a unit within a multi-unit complex, such as a condo or shares in a coop; or even a residential unit in a mixed use building; as well as entire buildings designed for occupancy by one to four families)
    • Vacant land upon which the purchasing entity or trust/trustee intends to build a structure that is designed principally for occupancy by 1-4 families building such a residential real property

So, if you have an internal IT team or outsource your IT needs with a particular vendor, having a conversation with them now about how they can help you accomplish the work discussed above would not be premature.

• Consider the Final Report’s required information, identifying what you already have and what you need to obtain from other sources – i.e. from the bank, from the purchaser’s representative, the seller or seller’s representative, and from the signer for the purchaser.
  • The Final Rule requires bank account information for the bank from which the source of funds originated. A title agent does not typically get that information on the wire confirmation or receipt that it receives from its own bank when an incoming wire or certified check is received or deposited. However, you can talk to your bank manager and inquire if the bank would be willing to provide you with that additional information on the documentation that it sends to you.
  • While the Final Rule only requires retention of the Purchaser’s Certification of Beneficial Ownership Information (and of any Designation Agreement that you may enter into), it is still both important and smart to retain all of the data in writing that is provided to you by others.  If a question regarding your compliance should ever arise, then you would have documented evidence to show what you relied upon. This would apply to even an analysis of whether or not you have a reportable transaction under the Final Rule. For example, if the transaction is a purchase of vacant land, you may want to have the buyer’s representative state its future intent for the land in writing (because if it doesn’t intend to build a structure that is designed principally for occupancy by 1-4 families, then you don’t have a reportable transaction under the Final Rule).

• Consider the cost of compliance with the Final Rule and how you can make your process be the most efficient and effective in terms of the expense — and perhaps even recoup some of the expense depending upon what your state law and regulator allow.
  • The biggest cost driver is going to be the administrative personnel’s time for those who will be working on collecting the data and reporting it. Here are some tips that may help:
    • Have two well-trained staff members whose education, experience, workload and market rate are appropriate for the time and tasks required to comply with the Final Rule.  In case one staff member is unavailable to do the reporting, you will have ready coverage by having a backup person. Remember that there is a due date for compliance – which is the later of either:

(i) the final day of the month following the month in which the date of closing occurred; or

(ii) 30 calendar days after the date of closing.

In other words, if November 1^st is the closing date, then December 31^st would be the last day for submitting a timely report to FinCEN.

• If you have very few transactions that would be subject to reporting under the Final Rule, perhaps it does not make sense for you to have your own staff members trained to take on the task. In that event, you may want to investigate your options for designating another reporter as identified in the Final Rule. In this event, you would want to do your due diligence and vetting in advance of December 1, 2025. Be aware that if you see a vendor advertising to provide this service, unless it is identified as an optional designated reporter within the Final Rule, it cannot relieve you of your reporting responsibilities.
• This can’t be stressed enough: collect the data from the respective parties or people before the closing date. Our experience with FinCEN’s Geographic Targeting Orders has shown that if you wait until after closing, then you will be wasting a lot of time (and money) chasing after the needed information.
• If you have repeat entity or trust customers who typically purchase residential real estate for cash, educate them in advance of the effective date of the Final Rule regarding what to expect.  This may help your customers to have their information ready for data collection while at the same time building their trusted relationship with you.  The Final Rule does not require confidentiality as to its contents.
• Since the Final Rule does not discuss recoupment of cost, there is no federal prohibition against it. Your state laws and regulators will be the ones who ultimately determine what kind of recoupment, if any, is allowed for the expense you will incur to comply with the Final Rule. Start having conversations with your state land title association early, as they are your advocates and may be able to provide you with guidance from your state regulators.
• Stay abreast of developments (e.g. any amendments to the Final Rule or FinCEN FAQs) by subscribing to FinCEN News Updates (sent to you via email or text messages). Also, keep an eye out for ALTA’s publications and resources as they become available.
• Read informative articles from trusted sources. One such recent article that is worthy of mention is Locke Lord Quick Study: FinCEN Adopts New Rule on Cash Sales of Residential Real Estate, published September 9, 2024.
• Review the draft Real Estate Report which has 111 distinct fields; get familiar with the form and write down your questions for future discussion.

Tags: crime, finCEN, fraud, real estate