By: Jonathan J. Fox and Andrew M. Wulf
On March 1st, 2026, a recent FinCEN rule change will go into effect. Essentially, on certain transfers of real estate, a standardized reporting requirement will be legally imposed in a fashion similar to Bank Secrecy Act obligations. This article explains the rule’s reporting requirements. This article lays out (I) what the rule requires with regards to which transactions must be reported, (II) by whom must the transaction be reported by, (III) exemptions that apply, and (IV) other specific nuances of the new reporting rule requirements. The rule is still new, so further developments and law pertaining to the new reporting rule should be made note of as they come out.
The General Rule: What Transactions Must Be Reported
Under the new rule, any transaction that meets the following elements MUST be reported:
- The transfer or transaction involves residential real property in the U.S.
- The transfer is a non-financed transfer.
- The Transferee is a legal entity or trust.
- No exemption applies.
All of the above elements must be met for the rule to apply and for the transaction to be considered reportable.
There are also some specific nuances that bear on each element. Residential real estate includes single-family homes, condos, co-ops, townhouses, unit residential buildings with 1 to 4 units, mixed-use property with a residential component, and vacant land intended for residential construction with 1 to 4 units. With regards to the transfer being non-financed, this element essentially means that there must be no extension of credit by a financial institution with Anti-Money Laundering/Suspicious Activity Report obligations. It is worth noting that private lenders do not qualify as exempting lenders: transactions funded by private lenders remain “non-financed.” On the issue of whether a transferee is a legal entity or trust, this element includes LLCs, corporations, partnerships, domestic and foreign trusts. Moreover, certain highly regulated entities may fall under definitional exemptions, which are discussed next in this article.
Exemptions
There are various exemptions that FinCEN has stated apply. A report is not required for:
- Easements
- Transfers resulting from death
- Divorce/dissolution transfers
- Bankruptcy estate transfers
- Court-supervised transfers
- No-consideration transfers by an individual to a trust for which they (or spouse) are the grantor
- Transfers to a qualified intermediary under IRC §1031
- and/or
- Situations where no reporting person exists
In addition, reporting is not required where the transfer is a gift transfer, or where the transfer is to an individual. Transfers that fall outside the rule’s specific phrasing (such as financed transactions/transfers) are also, by definition, exempt.
Who Reports?
FinCEN uses a seven-level cascade to identify the required filer:
- Settlement/closing agent
- Preparer of the closing/settlement statement
- Person who files the deed for recording
- Title insurer issuing the owner’s policy to the transferee
- Person who disburses the greatest amount of funds
- Person providing a title status evaluation
- Person preparing the deed or other transfer instrument
Only one party ultimately files the report, based on how far down the cascade depending on the circumstances. According to FincEN, if a person is performing the first function described in the cascade, then that specific person would be the reporting person. If no person performing the first function described in the cascade is involved in the transfer, though, then the reporting person would be the person that performs the second described function, if any, and so on down the cascade until a designation is first applicable. In other words, the party or person who files the report with FinCEN is the first one down the list where applicable.
Alternatively, a Designation Agreement can also be signed by the parties. Instead of relying on the reporting cascade above, parties may designate the reporting party by agreement. There is no required format for a designation agreement, but it must be in writing and identify the date of the agreement, the name and address of the transferor, the name and address of the transferee entity or transferee trust, the property, the name and address of the designated reporting person, and the name and address of all parties to the designation agreement. Separate and unique designation agreements between the same parties are still required across multiple transactions (one for each transfer), even if all the parties involved intend to make the reporting party the same throughout every single transaction or transfer.
Nuances of the Reporting Rule
FinCEN’s new rule has a litany of nuances that should be kept in mind. First and foremost, what happens in a scenario where there are reportable and non-reportable elements? According to FinCEN, in these mixed transaction scenarios, mixed-use properties are reportable even if there is also a mixed commercial element (e.g. a single-family residence that is located above a commercial enterprise). Certain types of land on which a residence is not yet built are also included in this reporting requirement rule.
Second, the new reporting rule does NOT apply to gift transfers, and the rule does not require reporting for transfers to individuals only. According to FinCEN, the following transfers are not reportable:
- A transfer that is a grant, transfer, or revocation of an easement.
- A 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 (such as transfers resulting from intestate succession, surviving joint owners, and transfer-on-death deeds), or by contractual provision (such as transfers resulting from beneficiary designations).
- A transfer incident to divorce or dissolution of a marriage or civil union (such as transfers required by a divorce settlement agreement).
- A transfer made to a bankruptcy estate.
- A transfer supervised by a court in the United States.
- A transfer for no consideration made by an individual, either alone or with their spouse, to a trust of which that individual, that individual’s spouse, or both, are the settlors or grantors.
- A transfer to a qualified intermediary for the purposes of a like-kind exchange for purposes of Section 1031 of the Internal Revenue Code.
- A transfer for which there is no reporting person.
It is important to note that the above list is not comprehensive. Determining whether a transaction is reportable is a fact intensive inquiry that may differ on a case-by-case basis. In addition, if a transfer involves multiple transferees, and either some of the transferees would not invoke the rule or some of them are exempt from the reporting rule, the rule still applies and the report is still required, however it is required to report only to the extent that the reportable transferee and information requires. In other words, a mixed transfer is reportable only to what the rule requires as reportable, and the transferees that do not invoke or are exempt from the rule are not required to be reported to FinCEN.
At Kelleher + Holland, LLC, we regularly guide clients through complex real estate transactions and the evolving regulatory requirements that can come with them. From identifying whether a transfer is reportable to ensuring the proper party fulfills FinCEN’s new obligations, our attorneys help clients structure transactions thoughtfully and move forward with confidence.
Contact us today to discuss your transaction and ensure you are prepared for these new reporting requirements.