On March 1, after months of delays, the federal government officially launched new nationwide reporting requirements to help prevent criminals from laundering money through certain residential real estate transactions.
If a property was paid for in cash or without traditional financing from a bank, real estate title companies, settlement agents, and closing attorneys would be required, with limited exceptions, to provide the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) with details about the transaction.
FinCEN’s new requirements, however, survived less than three weeks. On March 19, a federal judge in the Eastern District of Texas vacated the residential real estate rule, saying FinCEN had overstepped its statutory authority. The decision blocks the rule nationwide.
While the decision grants the real estate industry a reprieve from reporting requirements, the federal government is unlikely to give up so quickly. Judges in the Middle District of Florida and the Northern District of Texas have upheld the rule, creating a split among the federal courts. That may spur FinCEN to appeal or seek a stay of the Eastern District of Texas decision. Officials may also revise the rule to narrow its scope to address the court’s concerns.
As Foley & Lardner wrote in a recent article covering the decision, “Clients should continue to monitor this space.”
Crime Deterrent or Compliance Nightmare?
Under the nationwide rule, FinCEN asked real estate professionals to file an intricate, five-page report with details about the property involved in a transaction, the entity or trust transferring the property, beneficial owners, the entity or trust receiving the property, how payments were made, and where the money originated. Failure to file reports would result in fines for real estate professionals involved in the closing process.
Opponents said the reporting requirement created an expensive and onerous compliance burden. In his decision vacating the rule, U.S. District Judge Jeremy Kernodle of the Eastern District of Texas noted that FinCEN’s own calculations put the number of transactions covered at 800,000-850,000 annually with first-year compliance costs of between $428.4 million and $690.4 million.
FinCEN argued that the rule helps “combat and deter money laundering by increasing transparency.” Non-financed transfers, including all-cash sales, may give criminals a chance to avoid scrutiny from financial institutions that have controls in place to prevent money laundering and terrorism financing, the agency said.
While it acknowledged that buyers and sellers have many legitimate reasons for using legal entities and trusts to own a residential property, FinCEN said that “illicit actors intent on laundering funds through residential real property often use legal entities and trusts to disguise their identities and make the proceeds of crime more difficult to identify.”
Delays and a Lawsuit
Prior to the rule, FinCEN pursued a more limited, geographically targeted anti-money laundering program aimed at high-end residential transactions in key urban markets. But agency officials said the geo-targeted efforts were insufficient to capture suspicious transactions across the country.
In 2024, the agency finalized the nationwide rule with an effective date of Dec. 1, 2025. Last fall, FinCEN delayed implementation of the rule to March 1, 2026, to allow the real estate industry “sufficient time to institute the policies, procedures, and processes necessary” to comply.
In April 2025, Tyler, Texas-based Flowers Title Companies filed suit with pro bono backing from the conservative Pacific Legal Foundation (PLF). The mother-daughter-owned company provides title services and insurance for real estate transactions, largely in East Texas. With Texas seeing an uptick in all-cash transactions because of an influx of people relocating from higher-cost states like California, compliance would be time-consuming and costly, the PLF argued, and would force the enterprise to engage legal counsel and staff to create the proper procedures to track and report transactions.
“Beyond these practical challenges, [the owners] face a double threat: being forced to perform government surveillance on their clients by reporting private information from legitimate transactions, while risking severe penalties for an inadvertent mistake,” the PLF has argued.
Constitutional Problems
In Flowers Title Companies LLC v. Bessent, PLF lawyers asserted that FinCEN’s rule exceeded the agency’s statutory authority under the federal Bank Secrecy Act and violated the Constitution by delegating congressional lawmaking powers to the agency and forcing unreasonable searches and seizures of business records.
“This overreaching regulation is not just burdensome,” PLF said in an article on its website. “It’s also a rat’s nest of constitutional problems.”
In his decision, Kernodle agreed that the agency had gone too far. He granted the PLF’s motion for summary judgment and rejected a motion by FinCEN to toss the suit.
While federal law allows FinCEN to require reports of any suspicious transaction, “the agency fails to explain or show how non-financed transactions are categorically ‘suspicious,’” Kernodle wrote. He added that FinCEN also has the right to require financial institutions to maintain procedures required by federal banking law, but “not the authority to require the reports” covered by the residential real estate rule.
FinCEN’s interpretation “changed the meaning” of statutory language, Kernodle said, to grant it “independent, standalone authority” to require reports. “FinCEN’s interpretation, moreover, smuggles expansive reporting authority into a provision that is focused on procedures,” the judge wrote.
Rolling Back the Clock
The decision to vacate the rule is “universal” and “not party restricted,” Kernodle wrote, citing precedent in the U.S. Court of Appeals for the Fifth Circuit, where the Eastern District of Texas is located. This extended the ruling nationwide.
The judge added that the “seriousness of the rule’s deficiencies” means it is unlikely FinCEN would be able to justify its decisions on remand. The fact that the rule has only been effective since Dec. 1, 2025, also means that vacating it “would not be unduly disruptive.”
In light of the decision in Texas, FinCEN has now suspended reporting requirements. “Reporting persons are not currently required to file real estate reports with FinCEN and are not subject to liability if they fail to do so while the order remains in force,” the agency announced on its website.
In essence, the Texas court rolled back the clock to Nov. 30, 2025. At that point, FinCEN was using its Geographic Targeting Orders program to monitor non-financed transactions in large metropolitan areas. Foley & Lardner, in its article about the decision, said “title insurance underwriters and other related companies operating in major U.S. metropolitan markets can expect FinCEN to resume issuing GTOs to close the anticipated [anti-money laundering] reporting gaps.”
Success in Other Courts
In spite of the Eastern District of Texas case, FinCEN has had success defending the rule in other federal courts. In the U.S. District Court for the Middle District of Florida, Magistrate Judge Samuel Horovitz said the nationwide rule is statutorily authorized, not arbitrary or capricious, and does not violate the First or Fourth Amendments. He granted FinCEN summary judgment in Fidelity National Financial v. Bessent.
The plaintiffs asked the Middle District to overturn the magistrate’s decision, arguing that Horovitz “too loosely interpreted the Bank Secrecy Act’s rulemaking authority,” according to court records.
In February, U.S. District Judge Wendy Berger upheld Horovitz, noting that he found that the transactions targeted by the nationwide rule are sufficiently suspicious and relevant and fall within FinCEN’s statutory authority. The plaintiffs, Berger wrote, “seemingly argue that [federal law] grants FinCEN authority to compel the reporting of certain suspicious transactions, but only at the individual transaction level, and not as to a category of suspicious transactions.”
Also in February, the U.S. District Court for the Northern District of Texas granted summary judgment to the government and rejected a challenge to the rule, though it has not yet issued a memorandum opinion and order explaining its decision. A fourth federal suit, in Puerto Rico, is also pending.
The Road Ahead
Splits among multiple federal courts may provide FinCEN fuel for a possible appeal. That would be music to the ears of anti-money laundering and corporate transparency advocates who have decried Kernodle’s opinion.
“In striking down this rule, the district court in Texas has just sided with cartels, money launderers, and U.S. adversaries and given them free license to continue moving their dirty cash through U.S. real estate,” Ian Gary, executive director of the FACT Coalition, an advocacy group focused on financial accountability and corporate transparency, said in a statement. “Two other federal courts have recently upheld the rule as lawful and constitutional. We therefore expect the government to swiftly appeal this outlier decision and the appellate court to overturn it.”
In advisories to clients, law firms are suggesting an appeal by FinCEN is likely and that abandoning anti-money laundering data collection and diligence altogether may be unwise.
First, other anti-money laundering laws may apply if a real estate professional suspects illicit activity. Companies may also wish to preserve their compliance efforts and training to remain on track should the rule reappear in some form. And while they can press pause on FinCEN filings, they may wish to reduce their risk by conducting anti-money laundering due diligence around their all-cash transactions.
At the very least, they should keep a close eye on guidance from FinCEN in the weeks ahead and consult their counsel to ensure they avoid regulatory headaches.
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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times, and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms as senior content consultant.