Sean Bryan Authors Article on Treasury’s Nationwide Disclosure Rule for Real Estate Transfers

Hot on the heels of the Corporate Transparency Act (“CTA”) that requires reporting of beneficial ownership of almost all small businesses, and as part of a similar money-laundering effort, the FinCEN unit of the U.S. Department of the Treasury has proposed a rule that would require similar disclosures for all transfers of residential real property that do not include bank loans.  This would supersede the program of Geographic Targeting Orders (“GTO”) begun in 2016, which have a minimum $300,000 applicable purchase price and apply only to specified geographic locations (currently including Tarrant and Dallas Counties in Texas); the new program would be nationwide and apply to any transfer (including gifts).  The stated rationale for this new rule is to curtail money-laundering by “illicit actors”, with former African presidents and Russian oligarchs being expressly referenced. 

The new rule would apply to any transfer of residential real property for which there is no financing from a lender who is subject to existing anti-money laundering laws or other governmental regulation; in other words, any all-cash purchase or a purchase using a loan from family or another related parties.  Transfers by gift would be subject to reporting under the rule.  Transfers between natural persons would be exempted (at this time), so only where an entity or trust is involved would reporting become required.  Applicable property includes single family homes, any building with residences for up to four families (including residences in buildings with a commercial component), condominiums, shares in cooperatives, and vacant land zoned for residential real estate.  Exclusions would include easements, transfers upon death or divorce of the owner, and transfers within a bankruptcy proceeding.  

FinCEN determined that the CTA would not be an appropriate substitute for the proposed new rule because of their differing purposes, so this proposed new reporting is separate from the CTA regime and is intended to be more streamlined than the CTA.  The new rule, however, would require very similar disclosures of parties to a transaction (both buyer and seller) and piggybacks on the CTA by incorporating the CTA’s definition of a “beneficial owner”, who is an individual who owns 25% or more of a buyer.  Most of the CTA’s exempted entities apply, but unlike the CTA the proposed rule would apply to non-profit entities, “large operating companies” and pooled investment vehicles (i.e. investment funds) who are not subject to SEC registration.  

The rule would require substantial disclosures to the title company or other reporting party as part of an all cash-transaction.  Information required for both buyers and sellers (and every individual who is a beneficial owner of a buyer that is an entity or trust) would include (1) names, (2) the address of the place of business for an entity or residence for an individual, (3) citizenship, and (4) an identifying number such as a Social Security number or other tax identifier.  For a buyer, the same information would also be required for the individual actually signing the transfer documents on buyer’s behalf.  Reporting for trusts would include trustees and under certain circumstances could include trust protectors, grantors or settlors, or beneficiaries.  Information required to be reported would also include total consideration (including any payments made other than through the title company), loans from a person who is not a financial institution, and other details regarding payment.  Unlike the CTA and the current GTO regime, the new rule would not require submission of a copy of a driver’s license, passport, or other form of identification, although reporting parties may ask for such ID or it may otherwise be requested for a transaction.  Regrettably, CTA identifying numbers would not be available for use under the proposed rule to bypass the information to be provided to the reporting person. 

The reporting party is a “person engaged as a business in the provision of real estate closing and settlement services”, and generally would be the title company involved in the transfer as the closing or settlement agent.  Under circumstances where no title company is used in a transaction, however, there is a “cascade” of reporting persons to ensure compliance which could include title insurance underwriters, disbursers of funds, or preparers or filers of deeds or other corresponding transfer documents (such as attorneys).  Reporting parties would not be required to verify information but may rely on information provided and certified by the parties, and the reporting party must retain the information for five years.  Collected information would be submitted electronically to FinCEN and would be stored in the same data banks as other Bank Secrecy Act reporting to be available to law enforcement agencies. 

Comments on this rule may be submitted to FinCEN until April 16, 2024.