FinCEN’s Proposed Rulemaking Impact on Residential Real Estate

Published: May 7, 2024

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, recently proposed a rule aimed at enhancing the transparency in residential real estate transactions and transfers. The intent is to curb money laundering and fraud in the real estate sector through similar requirements to those imposed by the Corporate Transparency Act.

The rule mandates the collection and disclosure of beneficial ownership for legal entities involved in the transaction, including corporations, LLCs, partnerships, and trusts.

This would require, for example, insurance companies to identify the individuals behind shell companies and other legal entities. These efforts are also similar to the existing Bank Secrecy Act (BSA) which requires the collection of beneficial ownership information where residential real estate is purchased for cash exceeding $300,000 in certain targeted areas. (In Florida this includes Miami-Dade, Broward, Palm Beach, Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee and Collier Counties.)

However, unlike the BSA, this new rule would apply nationwide and would have no minimum value or purchase price to require reporting. Because of the removal of these limitations the new rules will include both sales of property as well as gratuitous transfers to a landowner’s trust or other entity.

What are the potential business implications?

1. Increased Compliance Costs – Additional investment would need to be made by title companies and other reporting entities to enhance their due diligence process, data collection mechanisms, and training to ensure compliance with the rule. This is likely to increase operational costs, particularly for smaller firms with limited resources.
2. Impact on Transaction Timelines – Additional due diligence measures could impact timelines in real estate deals. These delays could pose challenges for buyers, sellers, and other stakeholders.
3. Market Uncertainty – The rule may trigger short-term disruptions in certain real estate markets, especially those characterized by a high prevalence of cash transactions. Pricing trends and demand-supply may experience fluctuations as the real estate industry adjusts to the regulatory landscape.
4. Enhanced Market Transparency – Despite the potential disruptions, the rule stands to increase market transparency in the long run. Enhanced transparency could foster confidence amongst market participants, thereby strengthening the industry’s resilience and sustainability over time.

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Click HERE to review the Fact Sheet published by FinCEN about the proposed rule. Our team continues to monitor this proposed rule and will provide updates, as available.