FinCEN to Impose New Rules on All-Cash Real Estate Deals

- This new nationwide rule replaces a series of temporary Geographic Targeting Orders (GTOs) that have been periodically issued by FinCEN since 2016. These earlier orders required title insurance companies to identify the individuals behind shell companies used in all-cash deals in specific luxury markets, which have included Cook County, Illinois. - The regulation targets non-financed transfers of residential real estate, including 1-4 family homes, condos, and co-ops, to entities like LLCs, partnerships, or trusts. This includes transactions using hard money loans or seller financing where a traditional lender with existing anti-money laundering obligations is not involved. - A 2021 report from Global Financial Integrity estimated that over $2.3 billion was laundered through U.S. real estate between 2015 and 2020, with money laundering occurring in various markets, including the Midwest. The Treasury's 2024 National Money Laundering Risk Assessment noted that 20% to 30% of residential purchases are made without financing, avoiding the anti-money laundering checks performed by mortgage lenders. - Unlike the Corporate Transparency Act, where the reporting burden falls on the entity itself, this new rule makes the professionals involved in the closing—such as the settlement agent, title company, or attorney—responsible for filing a "Real Estate Report" with FinCEN. - Information required in the reports includes details on the buyer entity and its beneficial owners (individuals with at least 25% ownership or substantial control), the property, the purchase price, and the payment methods used. This information will be stored in a non-public government database accessible to law enforcement. - While the rule focuses on residential property, a FinCEN analysis of Suspicious Activity Reports found that property management and real estate investment companies were among the most frequently reported entities in suspected money laundering in the commercial real estate sector. - The rule provides some exemptions for certain types of transfers, such as those resulting from a death or divorce, and for transactions involving publicly traded companies or financial institutions that are already subject to anti-money laundering regulations. - Real estate professionals and investors who handle cash transactions will need to adapt their closing processes to collect the newly required beneficial ownership information, which could potentially extend transaction timelines.