A new federal reporting requirement for certain residential real estate transfers that was to take effect in December will now be implemented on March 1.
U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) will require an electronically filed Real Estate Report for residential real estate transfers when:
- The property consists of residential real property; and
- The transfer is non-financed; and
- The real property is transferred to a Limited Liability Company (LLC), corporation, partnership or trust (not to an individual); and
- An exemption does not apply.
The Residential Real Estate Rule applies to transactions of residential real estate in the United States and all territories. The purpose of the rule is to increase transparency and deter domestic and international money laundering. FinCEN postponed the effective date “to reduce business burden and ensure effective regulation.”
How is Residential Real Estate Defined Under the Rule?
Under the rule, residential real estate is defined as one- to four-family properties, condominiums, cooperatives, apartment buildings, vacant land where the purchaser intends to build a residential structure for occupancy by one to four families and mixed-use properties.
How is Non-Financed Defined Under the Residential Real Estate Rule?
Non-financed is defined as a transfer that does not involve an extension of credit secured by the transferred residential real property and extended by a financial institution that is subject to anti-money laundering requirements. Essentially, non-financed transfers would include all cash sales, transactions involving private or seller-financing and lines of credit or loans by a bank, mortgage broker or mortgage banker or other source that does not have an anti-money laundering program.
Who Must Report Under the Residential Real Estate Rule?
A “primary reporting person” is required to file the Real Estate Report. Typically, the individual who prepares the closing or settlement statement for the transfer would be the reporting person. Attorneys and title insurance agents are deemed to be reporting persons.
What Must be Reported Under the Residential Real Estate Rule?
The Real Estate Report must contain information about the transaction, including, but not limited to, full legal names of parties to the transaction, including beneficial owners, along with date of birth, address, citizenship, Social Security Number or Employer Identification Number; purchase price; source of funding; and description of the property. Failure to file the report can result in the imposition of significant penalties and fines, and for willful violations, possible imprisonment.
When Must the Residential Real Estate Report be Filed?
The report must be filed by the later date of either (1) the final day of the month following the month in which the reportable transfer occurs; or (2) 30 calendar days after the date of closing of title.
What are Exempted Transactions Under the Residential Real Estate Rule?
The following transactions are exempt from the new rule:
- A transfer of an easement;
- A transfer resulting from the death of an individual;
- A transfer resulting from a divorce or dissolution of marriage or civil union;
- A transfer to a bankruptcy estate;
- A transfer supervised by a court in the United States;
- A transfer for no consideration made by an individual or with that individual’s spouse to a trust of which that individual, that individual’s spouse or both of them are the settler(s) or grantor(s);
- A transfer to a qualified intermediary; and
- A transfer for which there is no reporting person.
FinCEN has published a full list of Frequently Asked Questions to assist reporters with this process. Real estate professionals should prepare now to integrate these requirements into their transaction workflows.
If you need assistance with filing this report, please contact a member of our Commercial Real Estate Practice Group, including attorney Melanie C. Marotto at (716) 200-5230 and mmarotto@harrisbeachmurtha.com; attorney Molly A. Sleiman at (716) 200-5115 and msleiman@harrisbeachmurtha.com; attorney Aurora Mali Perry at (716) 200-5124 and aperry@harrisbeachmurtha.com; or the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach Murtha’s lawyers and consultants practice from offices throughout Connecticut in Bantam, Hartford, New Haven and Stamford; New York State in Albany, Binghamton, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Long Island and White Plains; as well as in Boston, Massachusetts, and Newark, New Jersey.
