What is the Residential Real Estate Rule?

FinCEN’s Residential Real Estate Rule took effect on December 1, 2025, with reporting obligations beginning March 1, 2026. The rule was designed to address money laundering risks in certain U.S. real estate transactions. It focused on non-financed residential purchases involving legal entities and trusts, particularly those structured as all-cash transactions.

To determine whether a transaction was reportable, parties were required to work through a step-by-step analysis. If certain elements were met, the transaction would have been subject to reporting. For transactions that met the reporting criteria, the rule required submission of detailed information to FinCEN, including:

• Identity of the seller and buyer
• Information about the transferee entity or trust
• Beneficial ownership details
• Individuals signing on behalf of the buyer
• Property and transaction details, including purchase price and method of payment

The rule also established a hierarchy to determine which party was responsible for filing a report. Responsibility generally fell first on closing or settlement agents, followed by other participants such as settlement statement preparers and title professionals.

What does this mean going forward?

FinCEN has acknowledged the Texas ruling and stated that reporting parties are not currently required to submit real estate reports and will not face liability for failing to do so while the ruling remains in place; however, this may change quickly. An appeal or other regulatory action could revive reporting requirements with little notice.

Businesses and advisors involved in residential real estate transactions should continue to monitor developments and remain prepared to adjust their processes if needed. In the meantime, now is a good time to revisit internal procedures and consider how reporting obligations would be implemented if reinstated.

If you have any questions regarding these changes or to seek counsel from our Real Estate & Construction group, please reach out to request a consultation or call us at 216-696-1422.

The post LEGAL ADVISORY: Texas Federal Court Vacates FinCEN’s Residential Real Estate AML Rule – What This Means for Industry Participants appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

The Department of the Treasury announced in March that it will not enforce any penalties or fines associated with the CTA’s reporting rule and that it will propose a rule change narrowing the scope of the CTA to apply only to foreign reporting companies. While the CTA is currently subject to scrutiny, FinCEN is still looking to reduce illicit activity in the U.S. real estate market. In recent years, the market has fallen victim to exploitation by illicit actors purchasing residential real estate to launder money through non-financed (all cash) transactions. These illicit actors often purchase property through legal entities or trusts to conceal their identities and intentions from financial institutions and government agencies.

To combat money laundering and other illicit activity in the real estate market, FinCEN announced a final rule, 89 Fed. Reg. 70258, commonly called the “Residential Real Estate Rule,” in August 2024. The rule is set to take effect on December 1, 2025. Nationwide, the rule requires certain parties involved in real estate closings and settlements to report information to FinCEN about specific types of transfers of residential real estate that are considered high risks for illicit finance. With a widespread reach, it is important for individuals and professionals involved in the real estate market to familiarize themselves with the key aspects of the rule.

What Types of Transactions Need to be Reported to FinCEN? 

The goal of the Residential Real Estate Rule is to collect ownership information in non-financed transactions of residential property transferred to legal entities and trusts. However, not all transfers are considered reportable. Individuals and professionals need only report transfers that satisfy the following “reportable transfer” criteria:

1. The property is residential real property;
2. The transfer is non-financed;
3. The property is transferred to a legal entity or trust; and
4. An exemption does not apply. 

Prior to filing, the applicable party should familiarize themselves with the exempted transfers and entities to ensure that they are not unnecessarily reporting information. At a glance, exempted transfers include transfers relating to death, divorce, bankruptcy, for no consideration, where there is no reporting person, and more.

What Information is Required to be Reported to FinCEN?

Once a party has determined that they are involved in a covered transfer, the next step is to ensure that all relevant information is being reported. The rule requires that the following information is provided regarding the transfer of residential real estate: (i) identifies the reporting person; (ii) identifies the legal entity or trust receiving ownership of the property; (iii) “beneficial owners” of the transferee entity or transferee trust; (iv) individuals signing on behalf of the entity or trust during the transfer; (v) transferor; (vi) residential property that is being transferred; and (vii) total consideration of the transfer. Verifying that all this information is reported accurately is vital to ensure compliance.

Relevantly, beneficial owners of transferee entities are those that exercise “substantial control” over the transferee entity, or own/control at least 25% of the entity’s ownership interests. Moreover, the rule defines beneficial owners of transferee trusts as individuals who are trustees or otherwise have the authority to dispose of transferee trust assets.

Who is Required to Report the Information to FinCEN?

Under the rule, those responsible for closing or settlement functions in applicable transfers are typically required to report the relevant information. However, the rule specifically lays out ways to determine who is responsible for reporting. The first of these is the “reporting cascade.” The reporting cascade lists seven (7) different functions that are performed in transactions involving the transfer of residential real estate, ordered by function performed in the transaction. The person who does the function that is highest on the reporting cascade (for example, a settlement agent) is the one who has the obligation to report for that transfer.

The other manner that the reporting person may be determined is through the real estate professionals who perform the functions in the “reporting cascade” entering a written agreement designating an individual to take on the reporting obligations. This approach is more efficient because it is more straightforward and clearly defines who has the reporting obligation.

What Happens When There is Noncompliance with the Residential Real Estate Rule?

If a reporting person fails to file a report or files an inaccurate report, the final rule delegates to the Bank Secrecy Act. Within the rule, negligently failing to comply with reporting requirements under the rule can lead to civil penalties. However, knowingly noncomplying with the rule may lead to more serious criminal penalties.

Next Steps

Prior to the rule’s effective date on December 1, 2025, parties interested in transferring or purchasing residential property should consider whether they are involved in non-financed transactions that are covered under the final rule. It may be necessary to take steps to compile the required reporting information and begin to think through processes to designate individuals to report the relevant information. Unless one of the legal challenges amounts to the rule being stayed or struck down, the best course of action is to prepare as if the rule is going into effect on December 1.

The attorneys in McCarthy Lebit’s Real Estate practice group are continuing to stay apprised of developments relating to the Residential Real Estate Rule and other FinCen regulations. We are available to assist with any needed compliance for such regulations or to discuss any questions or needs that you may have.

For more information or to seek counsel from our Real Estate & Construction group, please reach out to request a consultation or call us at 216-696-1422. 

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McCarthy Lebit would like to thank law clerk Douglas J. Carter for his effort in assisting with the preparation of this legal blog post for The More Report.

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